Short-term market-based inflation expectations in the euro area have seen a historic drop. Recent data indicates that the first quarter of 2026 is projected to see an average Harmonized Index of Consumer Prices (HICP) of only 1.65% year-on-year. This downturn is part of a bigger trend, affected by declining energy costs and changing investor attitudes towards public markets.
By comparison, euro area survey-based inflation expectations have been stable to flatter their recent trajectories. Long-term, market-based inflation expectations have been moving sideways. In the same vein, the United States has experienced its survey based and long-term market based inflation expectations remain firmly anchored during this time.
China’s inflation came in significantly higher than expected for November. That jumped from 0.7% YoY to 0.8% YoY, almost entirely driven by increasing food prices. In the euro area, core inflation slid a bit below forecasts. For the month of December, it posted a month-on-month growth rate of +0.24% and a year-on-year rate of 2.6%.
December euro area inflation figures came in even lower than analysts had predicted. As a result, headline inflation fell from 2.1% year-on-year to 2.0% year-on-year mostly as a result of falling energy prices. In what’s at least some good news, inflation rates have dropped significantly. Core inflation has fallen a little, from 2.4% y-o-y to 2.3% y-o-y.
Taking into account the short-lived nature of September’s service inflation rate in the euro area, it has indeed improved, falling to 3.4% YOY. Even with this drop, it is still intractably high. Looming macroeconomic headwinds Overall macroeconomic environment is the clearest example of external factors at work. Energy prices, in particular, are helping to push inflationary trends throughout the country.
In the United States, realized inflation numbers for December were released near expectations. The ever-important headline inflation rate was +0.3% month-on-month sa & +2.7% year-on-year. Core CPI was unchanged at 1.2% YoY, and the Producer Price Index (PPI) stayed in deflation at -1.9% YoY. Additionally, tariff-driven goods inflation has been very constrained within the U.S.