06:19 AM EST, 01/07/2026 (MT Newswires) -- Eurozone headline inflation dropped back to the 2% year-over-year target in December from 2.1% in November, with core inflation falling from 2.4% year over year to 2.3%, said ING after Wednesday's data release.

The European Central Bank has referred to the current situation as 'the good place' repeatedly and is unlikely to change that mantra as current data continues to point to a benign inflation environment, noted ING.

For the months ahead, drivers of inflation do point predominantly to a softening, wrote the bank in a note, with the strong euro (EUR), low energy prices and the deceleration in wage growth, for example. While that is the case, selling price expectations from businesses for goods have increased in recent months and also ticked up for services in November.

As a consequence, headline inflation could drop more than core inflation, stated ING.

Still, the bank doesn't expect a significant drop below 2% in its base case, although such a scenario isn't unimaginable either. Over the course of 2026, however, ING predicts more upward pressure on inflation to return as fiscal spending is set to give a modest boost to economic growth.

The ECB expects inflation to be slightly below target this year and in 2027 before returning to 2% in 2028. With expectations like that, ING estimates policy rates to remain stable for the time being. The ECB is in a "luxury" position where it can afford to wait for more direction on the economy and inflation before deciding its next move.