In January, inflation fell in the United States, the Eurozone, the United Kingdom and Japan. The United Kingdom still has the highest inflation rate, ahead of the United States. The Eurozone followed, with Japan recording the lowest inflation rate. Core and wage trends are moderating overall, with this trend reinforced by the anchoring of inflation expectations.
In the United States, inflation (CPI) fell in January (-0.3 pp to 2.4% y/y)
Core inflation also moderated (-0.1pp m/m to 2.5%). Wages are gradually continuing to decelerate (page 22) and one-year household inflation expectations (page 16) are continuing to fall sharply (3.3% in February 2026, compared with 6.6% in May 2025). However, five-year inflation expectations remain historically high. At the same time, the price pressure index is rising slightly (page 14) and producer prices remain dynamic (+3% y/y in December). All of this supports the scenario of persistently higher inflation in the United States than in the Eurozone.
This scenario is even more likely given that inflation in the Eurozone slowed again in January, reaching its lowest level since April 2021 (+1.66% y/y; -0.3 pp m/m)
Core inflation is also down (-0.1 pp to 2.2%). Differences between countries persist, with France (+0.4%), Italy (+1.0%) and Finland (+1.0%) recording the most moderate rates, while Slovakia (+4.3%), Estonia (+3.8%) and Croatia (+3.6%) are continuing to see the strongest increases (page 9). The outlook remains favourable for disinflation, despite a sharp rise in the price pressure indicator since May (+5 pts) (page 14). Inflation expectations among forecasters and households remain stable (page 17) and growth in negotiated wages is slowing sharply (+1.9%, compared with 4% in October; page 22), as are producer prices (page 8).
In the United Kingdom, inflation remains high
But disinflation is continuing (3.0% y/y; -0.4 pp m/m), driven by the slowdown in the core component (3.1%; -0.2 pp; the lowest since September 2021). Forward-looking signals are pointing downwards, as producer prices have been slowing since October (-1 pp to 2.6% between October and January), wage growth has moderated markedly over a year (from 5.3% in January 2025 to 2.5% in January 2026) and household inflation expectations are now stable in the short and medium term (around 3.5%).
Inflation was weakest in Japan in January (1.5% y/y; -0.5 pp m/m)
The all-items index returned to its lowest level since March 2022, due to the now negative contributions of the energy and food components (page 6). Core inflation is also slowing sharply (-0.4 pp to 2.0%, according to the measurement by the BoJ) (page 12). While wage pressures remain high by historical standards (+2.1% in December), other indicators suggest that inflation is stabilising, as producer prices have moderated significantly (+2.3% in January 2026, compared with +4.2% a year earlier), one year forecasters’ expectations have declined (1.85% in January, compared with 2.75% in December) and price pressures have eased.
Chart of the month | Eurozone inflation outlook through 2027: Below or above target?
Eurozone: Headline and core inflation forecastsWhile 2027 is still some way off, the gap between our inflation projections (solid lines on the chart) and the ECB’s (dotted lines) is striking and worth examining. Keep in mind that the ECB’s forecasts date back to December 2025, with updates expected on 19 March, when the Governing Council meets and publishes its latest economic projections.
While both scenarios converge by the end of 2026, their paths diverge along the way. In our scenario, headline inflation (black line) would fall further below the 2% target, driven by a sharper decline in core inflation (green line). This latter would stem from the strong disinflationary effect that we are anticipating from the fall in Chinese export prices, as well as by the completion of the disinflationary process in services.
After 2026 which would continue to see disinflation[1], our scenario points to a 2027 “reflation” phase, driven by a continued cyclical strengthening of activity (resulting in particular from increased defense and infrastructure spending)[2] and, consequently, rising inflation[3]. In this context, the expected Eurozone’s inflation uptick should be viewed as a positive signal, indicating a renewed economic strength.
More broadly, 2027 could mark a structural break, not just for the Eurozone. The pre-pandemic era of persistently low inflation, hovering just below 2%, is unlikely to return. Instead, we may enter a new regime characterised by more frequent negative supply shocks (shortages, supply bottlenecks, climate disruptions). While AI-driven productivity gains may provide some offset, the net effect is likely to be greater inflation volatility as well as higher inflation on average, settling above the 2% target.
