Economic Headwinds in January: Why Eurozone Inflation Remains Sticky Despite Expectations

Recent analysis from Pantheon Macroeconomics suggests that the Eurozone’s inflation trajectory may prove more resilient than market participants had anticipated. The January inflation outlook, which previously seemed poised for a sharper decline, now appears set to ease at a more gradual pace. This subtle but significant shift in economic expectations has profound implications for monetary policy decisions across the region.

Analysts Claus Vistesen and Ankita Amajuri point to a mixed picture emerging from recent data releases. While initial forecasts projected January inflation would ease to 1.6%, updated analysis now suggests a reading closer to 1.8%, reflecting a more stubborn inflation dynamic than previously recognized.

January Inflation Data Reveals Stickier-Than-Expected Trend

The persistence of inflationary pressures during January reflects a complex interplay of forces that defy simple categorization. According to Jin10’s report on the latest Pantheon Macroeconomics analysis, recent inflation readings from major Eurozone economies have prompted a reassessment of the disinflationary trajectory.

The stronger-than-expected GDP performance recorded in the fourth quarter of 2025, coupled with a resilient labor market characterized by stable unemployment rates, suggests that underlying economic momentum remains intact. This economic resilience, while positive for growth, complicates the inflation picture by limiting the disinflationary impact of moderating demand pressures.

Germany and Spain Show Divergent Inflation Patterns

The cross-country variation in inflation dynamics underscores the heterogeneity of inflationary pressures across the Eurozone. In Germany, the situation presents a paradox: while electricity and gas price inflation has retreated from previous highs, this relief has been more than offset by a pronounced rebound in food prices and core goods inflation. The net result is continued upward pressure on the overall price level despite improvements in energy markets.

Spain’s inflation story differs slightly but follows a similar theme. The overall inflation rate has benefited from favorable base effects—comparisons against elevated prices from a year earlier—yet core inflation, which strips out volatile energy and food components, has remained elevated. This suggests that underlying price pressures persist even when headline inflation figures appear to moderate.

Services Sector Inflation Becomes the New Policy Challenge

What emerges most clearly from the January data is the troubling durability of services sector inflation. Energy price declines, which dominated the disinflation narrative in 2024, have failed to translate into broad-based price stability. Instead, services inflation continues to reflect tight labor market conditions and persistent pricing power among service providers.

This stickiness in services inflation raises difficult questions for monetary policymakers. The expectation that interest rate cuts might commence soon faces headwinds from this resilient inflation component, suggesting that the European Central Bank may need to maintain a more cautious approach to policy normalization than some observers have anticipated. The January inflation data, in this sense, may serve as a reminder that the journey toward price stability remains incomplete.