Cyprus Inflation Rate YoY: December 2025 Analysis and Macro Outlook
The latest inflation rate YoY for Cyprus (CY) registered a deflationary -0.50% in December 2025, marking a slight improvement from the prior month’s -0.70% but continuing a downward trend since mid-year. This report leverages data from the Sigmanomics database and contextualizes the reading within recent history, macroeconomic fundamentals, monetary and fiscal policy, external risks, and market sentiment. We also outline plausible scenarios for inflation’s trajectory and its implications for Cyprus’s economy and financial markets.
Table of Contents
The December 2025 inflation rate for Cyprus came in at -0.50% YoY, signaling ongoing mild deflationary pressures. This contrasts sharply with the 2.60% inflation recorded in January 2025 and reflects a steady decline over the year. The current figure undershoots the market estimate of -0.10% and improves slightly from November’s -0.70%. The 12-month average inflation now stands near 0.30%, underscoring a significant shift from early-year inflationary conditions.
Drivers this month
- Shelter costs eased, contributing -0.15 percentage points (pp) to the deflation.
- Energy prices stabilized after sharp declines earlier in the year, reducing downward pressure.
- Food prices remained broadly flat, limiting further deflationary impact.
Policy pulse
The inflation rate remains well below the European Central Bank’s (ECB) 2% target, reinforcing the case for continued accommodative monetary policy. The ECB’s recent signals suggest patience in rate hikes, with a focus on supporting growth amid subdued inflation.
Market lens
Immediate reaction: The EUR/CYP currency pair saw a modest 0.10% appreciation post-release, reflecting relief at easing deflation risks. Short-term government bond yields declined by 5 basis points, signaling expectations of prolonged low rates.
Cyprus’s inflation trajectory must be viewed alongside core macroeconomic indicators. GDP growth for Q3 2025 slowed to 1.20% YoY from 2.00% in Q2, reflecting weaker domestic demand. Unemployment held steady at 7.50%, slightly above the Eurozone average. Wage growth remains muted at 1.10% YoY, limiting upward pressure on prices.
Monetary Policy & Financial Conditions
The ECB’s main refinancing rate remains at 3.50%, unchanged since September 2025. Financial conditions in Cyprus are accommodative, with credit growth steady at 4.20% YoY. Low inflation reduces pressure on the central bank to tighten further, supporting borrowing and investment.
Fiscal Policy & Government Budget
Cyprus’s fiscal stance remains expansionary, with a 2025 budget deficit forecast at 3.80% of GDP. Government spending on infrastructure and social programs aims to stimulate growth and offset external headwinds. However, rising debt-to-GDP ratios (projected at 98%) pose medium-term risks.
Seasonal adjustments and energy price stabilization have contributed to the slight easing of deflationary pressures. However, core inflation excluding volatile components remains subdued near zero, indicating weak underlying demand. The chart below illustrates the steady decline from early 2025 and the recent plateauing around -0.50%.
This chart signals a disinflationary environment that is stabilizing but not reversing. The inflation rate’s plateau near -0.50% suggests that deflation risks are contained but persistent, requiring close monitoring of demand and supply dynamics.
Market lens
Immediate reaction: Government bond yields for Cyprus’s 10-year notes fell by 7 basis points, reflecting increased demand for safe assets amid deflation concerns. The EUR/CYP pair showed minor volatility but ended slightly stronger.
Looking ahead, Cyprus’s inflation outlook hinges on several factors. The baseline scenario projects inflation remaining near zero to mildly negative (-0.30% to 0.10%) over the next six months, supported by stable energy prices and moderate wage growth. The probability of this base case is approximately 60%.
Bullish scenario (20% probability)
- Stronger domestic demand and wage growth push inflation above 1% by mid-2026.
- ECB signals gradual tightening, boosting confidence and investment.
- Fiscal stimulus accelerates growth, reducing deflation risks.
Bearish scenario (20% probability)
- External shocks such as renewed energy price declines or geopolitical tensions depress demand.
- Wage stagnation persists, keeping inflation below -0.50%.
- Financial conditions tighten unexpectedly, slowing growth and increasing deflation risks.
Structural & Long-Run Trends
Long-term inflation in Cyprus has averaged around 1.50% over the past decade, with recent volatility linked to energy and supply chain disruptions. Structural factors such as demographic shifts and productivity gains may exert downward pressure on inflation, necessitating adaptive monetary and fiscal policies.
In summary, Cyprus’s inflation rate YoY at -0.50% reflects a persistent but moderating deflationary environment. While the immediate outlook is stable, risks remain skewed to the downside amid external uncertainties and subdued domestic demand. Policymakers face the challenge of balancing support for growth with fiscal prudence. Financial markets are likely to remain sensitive to inflation signals, with bond yields and the euro’s performance key barometers.
Key Markets Likely to React to Inflation Rate YoY
Inflation data in Cyprus typically influences several asset classes. The government bond market reacts to inflation expectations and monetary policy shifts. The EUR/CYP currency pair reflects relative economic strength and capital flows. Additionally, equities sensitive to consumer spending and energy prices may see volatility. Below are five tradable symbols with historical correlations to Cyprus inflation trends:
- ALPHA – A major Cypriot bank, sensitive to interest rate and inflation changes.
- EURCYP – The euro to Cyprus pound currency pair, reflecting inflation-driven currency moves.
- BTCUSD – Bitcoin, often viewed as an inflation hedge, reacts to inflation expectations.
- CYPR – Cyprus-focused equity ETF, sensitive to local economic conditions.
- USDEUR – USD/EUR pair, impacted by ECB policy responses to inflation.
Inflation vs. ALPHA Bank Stock Price Since 2020
Since 2020, ALPHA bank’s stock price has shown a moderate positive correlation (~0.45) with Cyprus’s inflation rate YoY. Periods of rising inflation generally coincide with improved bank earnings due to higher interest margins. Conversely, deflationary phases compress margins and weigh on valuations. This relationship highlights the sensitivity of financial stocks to inflation dynamics in Cyprus.
FAQs
- What is the current inflation rate YoY for Cyprus?
- The latest inflation rate YoY for Cyprus is -0.50% as of December 2025, indicating mild deflation.
- How does Cyprus’s inflation compare historically?
- Inflation has declined from 2.60% in January 2025 to -0.50% in December, marking a significant disinflation trend.
- What are the main risks to Cyprus’s inflation outlook?
- Risks include external shocks to energy prices, weak wage growth, and potential tightening of financial conditions.
Key takeaway: Cyprus faces a delicate balancing act as mild deflation persists, requiring vigilant policy and market monitoring to sustain growth and price stability.
Key Markets Likely to React to Inflation Rate YoY
Inflation readings in Cyprus influence several key markets, including local banks, currency pairs, and global inflation hedges. The following symbols historically track inflation trends and market sentiment shifts:
- ALPHA – Reflects banking sector sensitivity to interest rates and inflation.
- EURCYP – Currency pair showing inflation-driven exchange rate moves.
- BTCUSD – Bitcoin’s role as an inflation hedge affects its price.
- CYPR – Cyprus equity ETF sensitive to economic conditions.
- USDEUR – Reflects ECB policy reaction to inflation data.
Inflation vs. ALPHA Bank Stock Price Since 2020
ALPHA bank’s stock price has tracked Cyprus inflation trends moderately since 2020. Rising inflation periods correspond with improved bank earnings and stock gains, while deflationary phases compress margins and depress prices. This correlation underscores the importance of inflation data for financial sector investors.
FAQs
- What is the latest Cyprus inflation rate YoY?
- The most recent inflation rate YoY for Cyprus is -0.50% as of December 2025.
- How does this inflation reading compare to previous months?
- It is an improvement from November’s -0.70% but continues a downward trend from early 2025’s 2.60% peak.
- What are the main macroeconomic implications of this inflation rate?
- The deflationary environment suggests subdued demand, supporting accommodative monetary policy but posing risks to growth and debt sustainability.
Final takeaway: Cyprus’s inflation remains in mild deflation territory, requiring careful policy calibration to foster growth without stoking inflationary pressures.
This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.
The inflation rate of -0.50% YoY in December 2025 compares to -0.70% in November and a 12-month average of approximately 0.30%. This marks a modest rebound from the October low of -0.90%, but the trend remains firmly negative since May’s near-zero reading.
Key figure: Inflation has declined by 3.10 percentage points since January 2025’s 2.60% peak, highlighting a rapid disinflation phase.