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The economic outlook for Europe and the euro area is cloudy due to trade tensions and global risks, including tariff threats from the US. While global and regional developments in the economy are important, people primarily focus on how these factors affect their daily lives. For households, inflation is one of the biggest concerns.
In 2024, annual inflation in the euro area, measured by the Harmonised Index of Consumer Prices (HICP), stood at 2.4% according to Eurostat. This headline inflation reflects the overall rise in consumer prices.
According to the European Central Bank’s (ECB) June 2025 projections, inflation in the euro area is expected to ease to 2.0% in 2025 and further to 1.6% in 2026, before returning to 2.0% in 2027.
At the same time, energy inflation is projected to remain negative until the end of 2026, and then to rebound in 2027 due to “the climate change-related fiscal measures,” according to the ECB.
Inflation rate to rise in half of Europe in 2025
The OECD Economic Outlook report provides country-level inflation projections.
Among the 30 European countries with available data, in nearly half of them inflation is projected to rise by the end of 2025, compared with 2024.
In some cases, however, the change—whether an increase or a decline—is very modest, at 0.3 percentage points (pp) or less.
The highest expected change in percentage point terms is expected to be in Lithuania, rising from 0.9% to 4%, followed by Latvia (1.4% to 3.6%). Still, they won’t be in the top five for inflation in 2025.
In Lithuania, rising food and energy prices have a significant impact on increasing the inflation rate. In Latvia, core inflation—which excludes energy and food—will remain high due to strong wage growth related to labour shortages, while food prices are also on the rise, according to the OECD report.
The increase in inflation will also exceed 1 percentage point in Bulgaria (1.4 pp) and Hungary (1.2 pp) in this period.
In Italy, Finland, and Ireland, the inflation rate is projected to rise by 0.8 percentage points or more.
Between 2024 and 2025, Turkey is projected to see a dramatic decline in inflation, dropping by 27.1 percentage points from 58.5% to 31.4%. However, it will remain an extreme outlier, as the second-highest rate in Europe is expected in Hungary at just 4.9%.
Apart from Turkey, the largest declines in inflation during this period are projected in Iceland (-2.4 pp), Sweden (-1.5 pp), and Belgium (-1.4 pp).
Top economies: France to have lowest inflation, UK the highest
In 2025, among the five largest European economies, the UK is projected to record the highest inflation rate at 3.1%. This is driven by “increases in the national minimum wage, employer social security contributions, and utility bills” according to OECD.
In contrast, France will have the lowest inflation in 2025 at 1.2% thanks to cuts in electricity tariffs. “Tariffs on US imports only have a limited impact due to France’s low exposure to the US market,” the OECD noted.
Likewise, in 2026, France is projected to record the lowest inflation rate of the big five economies, at 1.66%, while the UK is expected to have the highest at 2.28%. Inflation is forecast at 1.88% in Italy, 1.91% in Spain, and 2.13% in Germany.
Inflation outlook between 2025 and 2026
Inflation is expected to fall in 2026 compared with 2025 in most European countries, with only five projected to see an increase. Sweden is projected to see the largest increase, rising by 0.7 percentage points from 1.3% to 2.0%, followed by France with an increase of 0.5 percentage points from 1.2% to 1.7%.
However, France would still have the second-lowest inflation rate among all countries.
Apart from outlier Turkey (-12.9 pp), the largest declines are expected in Estonia, Croatia, and Lithuania, each falling by more than 1.5 percentage points.
“Both fiscal and monetary policies have contributed decisively to the recent decline in inflation”, the OECD explained, yet Turkey remains a clear outlier.
Among the major economies, the UK is projected to see a 0.8 pp decline, while Spain will record a 0.5 point drop.
Inflation to stay below 2.8% in 27 countries in 2026
The OECD projects that, apart from Turkey (18.5%), inflation will not exceed 3.7% in any other European country in 2026. Rates are expected to range from 0.6% in Switzerland to 3.6% in Hungary, followed by 3.4% in Romania. In the remaining 27 countries, inflation is projected to stay below 2.8%.
With France as the second lowest, following Switzerland, at 1.7%, inflation rates in many countries are expected to cluster between 1.7% and 2.7%.
How Trump’s tariffs could affect inflation
The ECB report pointed out that the higher tariffs imposed by the US Administration, together with elevated trade policy uncertainty, are shaping the global economic outlook.
“If the US tariffs are increased and trading partners retaliate, this could dampen global economic activity, and hence euro area foreign demand, and increase inflation,” the ECB suggests.
Slowdown in real disposable income in 2025
In the euro area, real disposable income grew by 2.2% in 2024 compared with 2023. According to the ECB, this growth is projected to slow to 0.8% in 2025 before edging up slightly to 1.0% in 2026.
Household disposable income is the money households have left to spend or save after paying taxes and social security contributions. People use this income to cover their daily needs or put aside as savings.
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