Italy's inflation rate for December 2025 was reported at 1.20% year-over-year (YoY), unchanged from the preliminary January 7 release and slightly above November's 1.10% figure. This data, sourced from the Sigmanomics database, covers the full calendar month of December 2025 and compares against November 2025 as the immediate prior month. The 12-month average inflation rate since January 2025 stands near 1.40%, indicating a mild deceleration in price growth over the past half-year.

Drivers this month

• Energy prices stabilized after volatile swings in Q3 2025, contributing 0.15 percentage points (pp) to inflation.
• Food and beverage inflation remained subdued, adding 0.10 pp, reflecting stable agricultural output.
• Services inflation edged up slightly, driven by shelter and transportation costs, adding 0.20 pp.
• Core inflation excluding volatile items held steady at approximately 1.00%, signaling moderate underlying price pressures.

Policy pulse

The 1.20% inflation rate remains below the European Central Bank’s (ECB) target of close to but below 2%. This supports the ECB’s cautious stance on monetary tightening, with no immediate rate hikes expected. Financial conditions remain accommodative, though the ECB continues to monitor inflation dynamics closely amid global uncertainties.

Market lens

Following the release, the euro (EUR/USD) showed a mild appreciation of 0.10%, reflecting relief that inflation remains contained. Italian government bond yields (BTP 10Y) were little changed, signaling stable investor sentiment. Breakeven inflation rates in the Eurozone edged slightly higher, consistent with the steady inflation print.

Italy’s inflation trajectory in late 2025 reflects a complex interplay of domestic and external factors. The 1.20% YoY inflation rate in December 2025 compares with 1.10% in November and a peak of 1.60% in the late summer months (August–October 2025). This downward trend from mid-2025 levels signals easing price pressures after a period of supply chain disruptions and energy price volatility.

Monetary Policy & Financial Conditions

The ECB’s policy rate has remained steady at 3.50% since late 2025, with forward guidance emphasizing data dependency. Italy’s inflation below target reduces pressure for aggressive tightening. Credit growth in Italy remains moderate, and lending rates have stabilized, supporting consumption and investment.

Fiscal Policy & Government Budget

Italy’s fiscal stance remains cautiously expansionary, with the 2026 budget focusing on infrastructure and social spending. The government aims to balance growth support with debt sustainability. Inflation stability helps contain the real cost of debt servicing, easing fiscal pressures.

External Shocks & Geopolitical Risks

Global energy prices have stabilized after mid-2025 shocks linked to geopolitical tensions in Eastern Europe and the Middle East. Italy’s inflation benefits from this relative calm but remains vulnerable to renewed supply disruptions. The ongoing Russia-Ukraine conflict and trade uncertainties continue to pose downside risks.

What This Chart Tells Us

Market lens

Immediate reaction: EUR/USD rose 0.10% post-release, reflecting market comfort with stable inflation. Italian 10-year bond yields remained near 3.20%, showing no major risk repricing. Inflation-linked securities saw slight gains, consistent with steady inflation expectations.

Looking ahead, Italy’s inflation outlook hinges on several key factors. The baseline scenario projects inflation holding near 1.20%–1.30% in early 2026, supported by stable energy prices and moderate wage growth. However, upside and downside risks remain.

Scenario Analysis

• Bullish (20% probability): Inflation rises to 1.50%+ if energy prices surge due to geopolitical shocks or supply constraints, prompting tighter ECB policy.
• Base (60% probability): Inflation remains stable around 1.20%, reflecting balanced demand and supply conditions with no major shocks.
• Bearish (20% probability): Inflation falls below 1.00% if global growth slows sharply or fiscal tightening dampens domestic demand, risking deflationary pressures.

Structural & Long-Run Trends

Italy faces long-term inflation challenges linked to demographic shifts, productivity growth, and integration within the Eurozone. Persistent low inflation may constrain wage growth and investment, while structural reforms remain critical to boosting potential output and price stability.

Italy’s December 2025 inflation rate of 1.20% YoY confirms a stable but subdued price environment. This steadiness supports the ECB’s cautious monetary stance and Italy’s fiscal consolidation efforts. However, external uncertainties and structural challenges warrant close monitoring. Investors and policymakers should prepare for a range of inflation outcomes as 2026 unfolds.