Overview: Realized inflation landed slightly below expectations in December across the euro area and the US. Remaining sticky inflation is largely explained by services, while tariff-driven goods inflation remains very limited even in the US. Commodity price developments remain mixed, with rising industrial metal prices, but steady energy prices despite the geopolitical uncertainty.
Inflation expectations: Short-term market-based inflation expectations have declined significantly in the euro area, now seeing 2026Q1 HICP averaging 1.65% y/y. Survey-based inflation expectations, and long-term market-based inflation expectations have moved sideways both in the US and Europe.
US: December CPI landed close to expectations, with headline inflation at +0.3% m/m SA and 2.7% y/y (Nov +0.3% / 2.7%). Core inflation was slightly below expectations at +0.24% m/m and 2.6% y/y (Nov +0.16% / 2.6%). As the delayed November release was likely distorted by Black Friday discounts, we expected a modest rebound in price pressures. This materialized in housing and non-housing services as well as food prices, but core goods prices remained flat in m/m terms. Given the potential distortions and the Fed’s focus on services inflation, we do not expect the release to significantly alter the policy rate outlook.
Euro area: December inflation came in weaker than expected with headline inflation falling to 2.0% y/y from 2.1% y/y and core inflation declining to 2.3% y/y from 2.4% y/y. Falling energy prices was behind the move in headline inflation while significantly lower than expected core goods inflation drove the downward surprise in core inflation. At the same time service inflation declined slightly to 3.4% y/y but with momentum consistent to recent months, it remains sticky and a key argument for the hawk camp in the ECB. The recent decline in energy prices has lowered market expectations for Q1 2026 inflation to 1.65% (see chart below).
China: November CPI increased from 0.7% y/y to 0.8% y/y lifted by food inflation. Core CPI was again flat at 1.2% y/y. PPI stayed in deflation at -1.9% y/y.
