Remember when everyone thought inflation was finally tamed? Yeah, about that.
This morning, the flash estimate for November 2025 landed with a small but meaningful surprise: eurozone consumer prices rose 2.2% year-on-year. That’s up from 2.0% in October and, more importantly, a notch above the European Central Bank’s 2% target most economists thought we’d comfortably stay around.
It’s not panic-button territory – yet – but it’s definitely the kind of number that makes traders sit up a little straighter and central bankers clear their throats.
A Closer Look at What Moved the Needle
The devil, as always, is in the breakdown.
Services inflation – that stubborn component everyone keeps watching like a hawk – accelerated to 3.5% from 3.4% the previous month. If you’ve paid for a haircut, a gym membership, or pretty much any restaurant bill lately, you didn’t need official statistics to tell you that part of life still feels pricey.
Core inflation, which strips out the noisy stuff like energy and food, held steady at 2.4%. Steady is better than rising, but 2.4% is still noticeably above target and shows underlying price pressures haven’t vanished.
Why Services Matter More Than Ever
Services aren’t just one category among many anymore. In a modern European economy, they’re the heavyweight champion of the inflation fight.
Wages in the service sector tend to be stickier. Once salaries go up to match living costs, companies rarely cut them again when demand softens. That creates a natural floor under services prices – and, by extension, under overall inflation.
In my view, this is the single most important chart line to watch over the next six months. If services stay north of 3%, the ECB will have a very hard time justifying aggressive rate cuts.
The Energy Drag Is Fading Fast
On the flip side, energy prices continue to act as a disinflationary force, but the base effects that helped drag headline inflation down are now mostly gone.
Last winter’s comparatively mild weather and full gas storage meant energy contributed negatively to the year-on-year figure for months. That tailwind is turning into a headwind as we roll into winter 2025-26.
- Crude oil has stabilized around current levels
- European gas storage is again high, but not record-high
- Any colder-than-expected winter could flip energy from helper to hurdle
What the ECB Is Likely Thinking Right Now
The October meeting already felt like the ECB was pumping the brakes. The deposit rate was held at 2% – the third meeting in a row without a cut – after a string of reductions that began in June 2024.
“We will do whatever is needed to make sure we stay in a good place.”
– ECB President, October 2025
That phrase sounded reassuring at the time. Today, with inflation re-accelerating even slightly, it sounds more like a warning than a comfort.
The December meeting is now less than two weeks away. Markets are currently pricing roughly a 30% chance of a 25-basis-point cut. Those odds felt too high even yesterday; they look downright optimistic this morning.
Bond Markets Didn’t Wait for Permission
European government bond yields jumped immediately on the release. German 10-year Bunds rose nearly 8 basis points in the first hour – a big move for a normally sleepy market.
Higher yields mean higher borrowing costs for everyone: governments, companies, and yes, anyone with a mortgage or planning to buy a home in 2026.
It’s a classic case of the bond market doing the central bank’s communication for it.
| Indicator | October 2025 | November 2025 | ECB Target |
| Headline Inflation | 2.0% | 2.2% | 2.0% |
| Core Inflation | 2.4% | 2.4% | — |
| Services Inflation | 3.4% | 3.5% | — |
| Deposit Rate | 2.00% | 2.00% | Neutral ~2% |
Three Scenarios for the Next Six Months
Here’s how I see the possible paths forward – none of them particularly cheerful for anyone hoping for much lower rates soon.
- Soft Re-acceleration
Inflation drifts between 2.2% and 2.5% through spring. The ECB stays on hold indefinitely, maybe sneaks in one precautionary cut if growth surprises negatively. - Sticky Services Shock
Wage negotiations in Germany and elsewhere come in hotter than expected. Services top 4%. The ECB is forced to consider pausing the entire cutting cycle and perhaps even hint at hikes again. - External Shock
Geopolitical tensions push energy prices sharply higher. Headline inflation spikes above 3%. All bets are off.
Scenario 1 feels most likely right now. Scenario 2 would be painful. Scenario 3 would be a nightmare nobody wants to price in yet.
What This Means for Everyday Money Decisions
If you’re sitting on a variable-rate mortgage or planning any large borrowing in 2026, today’s number is a gentle reminder that the era of ever-lower rates might be paused longer than many hoped.
Fixed-rate offers that looked expensive a month ago suddenly don’t seem so bad. I’ve seen this movie before: waiting for “one more cut” can end up costing thousands.
On the investment side, European banks – often hated and left for dead during the low-rate years – are starting to look interesting again if the yield curve steepens and net interest margins widen.
Bottom line? Inflation isn’t surging, but it’s not surrendering either.
The European Central Bank spent 2024 declaring victory. November’s 2.2% print is a polite but firm reminder that the fight might have just entered a new, more stubborn phase.
Keep an eye on services, keep an eye on wages, and maybe keep an eye on those fixed-rate mortgage offers while they’re still available.
Because in the inflation game, as in life, things can change direction faster than anyone expects.
