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ECB Warns of Significant Inflation Risks
21 Feb
Summary
- Euro zone inflation hit a 16-month low of 1.7% in January.
- Cheap Chinese imports show a 27% volume increase since early 2024.
- Policymakers urge flexible monetary policy based on data assessment.
European Central Bank (ECB) policymakers are closely monitoring euro zone inflation, which recently dropped to a concerning 1.7% in January 2026, its lowest point in 16 months. This figure falls below the ECB's 2% target, prompting warnings of significant risks to price stability in both upward and downward directions.
Chief among these concerns are the growing influx of cheap imports from China. Since the beginning of 2024, these imports have surged by 27% in volume, while their prices have decreased by 8%. This trend is beginning to affect goods most exposed to Chinese competition, with their prices decelerating faster. While the disinflationary impact is currently limited, it is expected to become more pronounced in the coming months.
Further downward pressures on inflation could arise from a strengthening euro or a correction in financial markets. Conversely, geopolitical tensions in energy markets and potential supply chain fragmentation pose upward risks to inflation by driving up input costs. ECB Governing Council member Fabio Panetta emphasized the need for a flexible monetary policy, anchored to the medium-term outlook and a comprehensive data assessment.
