Euro area services inflation 2026: the last barrier to the 2% target

Services prices in the euro area are heavily driven by domestic wages. The euro area saw its biggest-ever real wage squeeze in 2022–23, and subsequent wage negotiations — especially in Germany, where multi-year collective agreements were renegotiated in 2023–24 — locked in catch-up wage growth of 4–6% per year through 2025–26. Service-sector businesses passed these costs into prices. Goods prices track global supply chains and commodity prices, which have normalised. See our services vs goods explainer for the full mechanics.

HICP (Harmonised Index of Consumer Prices) is the inflation measure used across the EU for cross-country comparability and ECB policy. Key differences from national CPIs: HICP excludes owner-occupied housing costs, uses geometric means at the elementary level (reducing substitution bias), and is published by Eurostat. The ECB's 2% target is defined in terms of euro area HICP.

The favourable energy base effects are expected to dissipate in Q1–Q2 2027. ECB staff projections show headline HICP rising from ~1.7% in Q3 2026 to ~2.3% in Q1 2027 as energy base effects turn neutral. This is why the ECB is not declaring victory on the basis of the current 1.7% headline.