Governor of the Central Bank of Finland: Inflation Risks in the Eurozone Tilt Towards Decline

According to Bloomberg, in an interview with Milano Finanza, Olli Rehn confirmed that inflation risks in the Eurozone are slightly tilted towards decline in the medium term, citing factors such as relatively low energy prices, a stronger euro, and expectations of slowing inflation in services and wages. These statements reflect a more optimistic view on the inflation trajectory in the Eurozone, with the inflation rate decreasing to 2.3% in November 2025 (down from 2.6% in October), approaching the 2% target amid the bank's efforts to balance monetary policy and economic growth.

Key quotes:
"Inflation risks in the Eurozone are slightly tilted towards decline in the medium term."
"These risks include relatively low energy prices, a stronger euro, and expectations of slowing inflation in services and wages."

The main reasons behind Rehn's comments, who is considered a moderate voice on the ECB Governing Council, reflect a more optimistic assessment of the inflation path in the Eurozone, noting that risks are "slightly tilted towards decline" over the medium term (6-18 months). This view comes as European inflation decreases to 2.3% in November 2025 (from 2.6% in October), approaching the 2% target, amid efforts to balance monetary policy and economic growth.

The primary reasons for his view, based on the statements and current economic context, include relatively low energy prices (the most significant factor): natural gas prices in Europe have fallen by 15-20% since October 2025, supported by increased supplies from Norway and Australia, decreased demand due to warm weather, and a shift towards renewable energy. This reduces "imported" inflation pressures, as energy constitutes 10-15% of the Harmonized Index of Consumer Prices (HICP).
The impact: this contributes to a slowing of overall inflation, making a return to the 2% target quicker and reducing the need for immediate additional rate cuts (current rate at 3.25%).
Stronger euro (a strong monetary factor): the euro has appreciated by 2.5% against the US dollar in Q4 2025 (from 1.08 to 1.11 dollars), supported by expectations of faster US rate cuts than European ones and better-than-expected European growth data (0.4% in Q3). This reduces import costs (such as oil priced in dollars), alleviating inflation by approximately 0.5-1%.
The impact: this enhances confidence in the euro, reduces imported inflation risks, but may pressure European exports (especially in Germany).

Expectations of slowing inflation in services and wages (an internal factor): service inflation decreased to 3.8% in November 2025 (from 4.2% in October), due to slowing economic growth (1.1% annually) and the effects of tight monetary policy. Meanwhile, wages increased by only 3.7% in Q3, below expectations (4%), supported by gradual labor agreements.
The impact: services and wages account for 50-60% of European inflation, so their slowdown indicates internal stability, supporting Rehn's view that risks are "tilted towards decline" rather than increase.

General context and implications:
These statements come ahead of the European Central Bank meeting on December 12, 2025, where a 25 basis point cut (to 3%) is expected, but Rehn indicates caution, which may influence the council's decisions. In the medium term, this outlook reflects optimism for inflation stability, but warns of external risks such as geopolitical tensions or global growth slowdowns. If these trends continue, it may allow for additional rate cuts in 2026, supporting growth without reigniting inflation.