Kazaks Warns ECB to Stay Vigilant as Inflation Remains Above Target

ECB policymaker Kazaks reiterated the institution's commitment to price stability, urging caution in interpreting recent inflation data. Speaking at a conference in Frankfurt, Kazaks highlighted that the eurozone's annual headline inflation rate stood at 2.8% in December 2025, down from 3.5% in June but still above the central bank's target. Core inflation, excluding food and energy, remained elevated at 2.6%, indicating persistent underlying pressures. Kazaks underscored that while the downward trend in inflation is encouraging, it does not justify premature easing of monetary policy. He pointed to wage growth, which rose by 2.9% year-on-year in Q4 2025, as a potential risk to long-term price stability. The central bank continues to monitor service sector inflation, which has held above 3% for three consecutive quarters. The comments come as markets have priced in approximately 45 basis points of rate cuts by the ECB over the course of 2026, with expectations for the first cut to occur in June. However, Kazaks cautioned that such expectations could be misplaced if inflation proves more persistent than anticipated. He emphasized that the ECB’s policy decisions would depend on a sustained and broad-based decline in inflation across all components. Market participants reacted cautiously, with the euro dropping to $1.0750 against the dollar and 10-year German government bond yields rising to 2.15%. Financial institutions, including Deutsche Bank and BNP Paribas, adjusted their forecasts for ECB rate cuts, now expecting only two cuts in 2026 instead of three. The central bank's upcoming December 2025 inflation report will be closely watched for further signals.