According to Eurostat’s short-term economic analysis, annual inflation in the euro area rose to 2.2% in September 2025, signaling a modest rebound in price growth after months of disinflation. Meanwhile, economic sentiment across the bloc showed a slight but notable improvement, reflecting cautious optimism among consumers and businesses.
🔍 Inflation Breakdown The data show a continued divergence across sectors:
Services prices increased by 3.2% year-on-year, driven by higher tourism, housing, and healthcare costs.
Food, alcohol, and tobacco rose by 3.0%, as agricultural input prices stabilized yet retail margins stayed high.
Energy prices, on the other hand, fell by 0.4%, marking the third consecutive month of decline thanks to lower gas storage costs and mild weather conditions across Europe.
Core inflation (which excludes energy and unprocessed food) remained steady at around 2.8%, indicating that underlying price pressures persist despite easing headline inflation.
🏦 Policy and Market Implications The latest figures keep inflation slightly above the European Central Bank’s 2% target, maintaining pressure on policymakers. While the ECB has paused its rate hikes since mid-2025, officials have repeatedly emphasized that interest rates will remain “restrictive for as long as necessary” to ensure price stability.
Economists interpret the data as a sign that the euro area is transitioning from a high-inflation phase to a more balanced, slower-growth environment. However, real wage growth remains limited, suggesting that household purchasing power has not yet fully recovered from the inflation shock of 2022–2024.
“The European economy is stabilizing, but not yet accelerating,” said an analyst at ING Group. “We are seeing the first signs of normalization, but the growth base is still fragile.”
📊 Broader Context The modest rise in consumer confidence was supported by a drop in unemployment to 6.1%, the lowest in two decades, and a slight improvement in industrial production in Germany and France. Nonetheless, private investment remains subdued, and fiscal consolidation in several member states could limit demand recovery in early 2026.
Overall, Eurostat’s September report suggests that Europe is gradually approaching a ‘soft landing’ — avoiding recession, but with slow growth and lingering price pressures
