The Service Sector Inflation in the Eurozone Slows to New Lows

RunWhenCut · 2026-02-22T15:01:33+00:00

Recent analyses indicate that the Eurozone's services sector is experiencing a more pronounced inflation slowdown than expected. Inflation has decreased from 3.4% to 3.2%, signaling a significant correction. Weak labor market dynamics suggest further pressures on inflation, potentially dropping below 2% in late 2026, influencing future ECB monetary policy decisions.

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2026-02-22 15:01:33

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Recent analyses by Capital Economics warn that the Eurozone’s service sector is experiencing a more pronounced inflation slowdown than the European Central Bank expected. The data points to a scenario where price pressures in this critical segment are steadily easing.

Continued Decline in the Service Sector Since the End of 2025

Inflation in the service sector has nearly reversed the upward momentum seen in the last months of the previous year. According to information gathered by Jin10, the rate dropped from 3.4% a few weeks ago to 3.2% currently, indicating a significant correction. This downward movement in the service sector marks a turning point in the region’s inflation dynamics.

Signs of Weakness in the Labor Market and Leading Indicators

The decelerating momentum in the service sector is reinforced by broader economic trends in the Eurozone. Wage growth has begun to slow, while multiple leading indicators send cautious signals about future economic activity. Jack Allen-Reynolds, an economist at Capital Economics, highlights that these trends are converging to put additional downward pressure on inflation in the service sector over the coming months.

Core Inflation Could Fall Below Targets in the Second Half of 2026

Projections suggest that this weakness in the service sector will pull core inflation below 2% during the second half of the year, with overall inflation falling even below 1.5%. These figures are below the forecasts currently held by the ECB, strengthening expectations of rate cuts before the end of 2026. The weakening of the service sector appears to be a decisive factor in the monetary policy decisions that European authorities are awaiting.

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