Inflation in the Eurozone services is rapidly losing momentum

BanklessAtHeart · 2026-02-15T05:12:13+00:00

Analysts from Capital Economics highlight a critical trend: inflation in the Eurozone's services sector is sharply slowing, contradicting European Central Bank models. Key drivers include wage growth decline and weakening economic indicators, with forecasts suggesting inflation might drop below 2% later this year. This shift indicates a potential reassessment of monetary policy towards a more accommodative stance.

BanklessAtHeart

2026-02-15 05:12:13

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Capital Economics analysts have identified a critical trend: inflation in the eurozone services sector is showing a sharp slowdown and moving in a direction contrary to European Central Bank forecast models. The data is based on expert research, including analysis by Jack Allen-Reynolds, and represents a significant shift in the region’s price dynamics.

Development of Price Trends: From Growth to Decline

During the summer-autumn period (August-November), there was a steady increase in price pressures in the services sector. However, with the arrival of winter, the picture changed dramatically. According to Jin10, inflation in eurozone services decreased from 3.4% in December of the current cycle to 3.2% in January. This significant slowdown signals a reversal of the upward trend, which seemed stable just a few months ago. Such a rapid shift from acceleration to decline indicates deep structural changes in the region’s economy.

Causes of Deterioration in Inflationary Pressure

The main drivers of the current decline are the slowdown in wage growth and the deterioration of leading economic indicators. When the pace of wage increases slows down, businesses lose the ability to pass rising costs onto consumers through pricing. At the same time, weakening signals at the business activity level indicate a demand reduction, naturally limiting sectors’ ability to maintain elevated price levels.

Trajectory of Decline and Market Expectations

Capital Economics experts forecast that inflation in services will continue its downward movement in the coming months. Moreover, they estimate that core eurozone inflation will fall below 2% in the second half of this year, and the overall price index may drop below 1.5%. These forecast figures differ significantly from the ECB’s conservative estimates, creating a substantial gap between market expectations and the central bank’s official stance. As a result of this divergence, investors and analysts are convinced of the need to cut interest rates by the end of the year.

The inflation dynamics in the eurozone thus demonstrate the potential for a more dovish revision of monetary policy than previously assumed.

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