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Cyprus Inflation Slows To 1.2% As Eurozone Price Pressures Ease

Overview Of The Inflation Landscape

The latest data from Cyprus indicates that the annual inflation rate has decelerated to 1.2% in January 2026, significantly lower than both the euro area and European Union averages. This development, reported by Cystat and Eurostat, underscores the easing of price pressures across the region.

Sectoral Dynamics Driving The Numbers

The Harmonised Index of Consumer Prices (HICP) fell from 2.9% in January 2025 to 1.2% year over year, while monthly inflation declined by 0.3%.

The strongest annual increases were recorded in recreation, sports, and culture (+5.8%), followed by restaurants and accommodation services (+4.8%) and education (+3.4%). Food and non-alcoholic beverages rose by 3.2%, while alcohol and tobacco, health services, and personal care goods posted more moderate gains.

By contrast, clothing and footwear prices declined sharply, falling 6.2% annually and 12.1% month over month, making the category one of the largest downward contributors to the overall index.

Regional And Economic Comparisons

Across the euro area, inflation slowed to 1.7% in January, down from 2% in December, while the EU average eased to 2% from 2.3%. The figures point to a broader regional cooling trend, although price dynamics remain uneven across member states.

France (0.4%), Denmark (0.6%), Finland (1%), and Italy (1%) recorded some of the lowest annual inflation rates. At the other end of the spectrum, Romania (8.5%), Slovakia (4.3%), and Estonia (3.8%) reported significantly higher readings.

Major economies, including Germany, Spain, Greece, Portugal, Malta, and Croatia, showed mid-range inflation levels, reflecting differing domestic cost pressures across the bloc.

Inflation Drivers And Key Contributions

Energy prices played a central role in slowing inflation. In the euro area, energy costs fell by 4% year over year, while Cyprus recorded an annual energy decline of 6.5%, helping reduce overall price growth.

Services, which account for nearly half of the consumer basket, remained the main upward driver, contributing 1.45 percentage points to inflation. Non-energy industrial goods had a more limited impact, while food, alcohol, and tobacco continued to add pressure with annual growth of 2.6%.

Conclusion

The slowdown in Cyprus inflation to 1.2% reflects both domestic price stabilization and broader easing trends across the euro area. Falling energy costs are helping offset persistent service-sector pressures, reshaping the inflation profile as policymakers and investors monitor the next phase of economic adjustment.

Bank of Cyprus Upgrade Signals Fresh Optimism For Greek And Cypriot Banks

Regional Banks Enter A More Favorable Cycle

Bank of Cyprus and Eurobank are well positioned to benefit from a renewed re-rating of Greek and Cypriot bank stocks, according to Cyprus-based investment firm Roemer Capital, which upgraded Bank of Cyprus to a buy rating and reaffirmed its positive view on Eurobank.

The firm cited easing geopolitical tensions, resilient economic growth in Greece and Cyprus, lower funding costs and Greece’s expected transition to developed-market status as the main factors supporting the sector.

Roemer Capital also lowered its cost of equity assumptions, updated its forecasts following first-quarter 2026 results and extended its valuation horizon to the end of 2027, raising target prices across its banking coverage.

Bank Of Cyprus Gets The Largest Upgrade

Bank of Cyprus received the biggest revision, with Roemer Capital upgrading the stock from hold to buy and setting a target price of €11.10, implying potential total upside of 27%.

The firm highlighted the bank’s strong capital generation, profitability and projected 100% dividend payout, describing it as the strongest capital-return story among the banks under coverage. Roemer Capital maintained its buy rating on Eurobank, assigning a target price of €4.90 and forecasting potential upside of 28%. The report said the bank is well placed to benefit from loan growth, improving operating performance and merger-and-acquisition synergies.

National Bank of Greece and Piraeus Bank also retained buy ratings, with expected returns ranging from 25% to 36%. Optima Bank was upgraded to buy, while Alpha Bank remained at hold on valuation grounds.

Why Growth Still Sets The Region Apart

According to Roemer Capital, Greek and Cypriot banks continue to benefit from stronger economic fundamentals than many western European peers. The report pointed to faster economic growth, healthier balance sheets, low levels of non-performing exposures, capital ratios approaching 20% and strong customer deposit bases.

Analysts expect performing loans across the sector to grow at a compound annual rate of 6% to 8% through 2028, supported by private investment, digitalisation, green manufacturing, supply-chain expansion and a gradual recovery in household lending.

The report also said the conclusion of lending under the EU Recovery and Resilience Facility is unlikely to materially affect credit growth, as banks have already shifted back towards traditional commercial lending. Roemer Capital expects Euribor to remain between 2.2% and 2.5%, a level it believes should support both lending activity and net interest margins.

Geopolitics, Valuation And Market Structure Support The Case

The report said improving geopolitical conditions have strengthened the investment outlook, noting that Brent crude prices have largely returned to pre-war levels while Greek government bond yields have stabilised at around 3.5%. Although geopolitical risks remain, Roemer Capital believes the likelihood of a major inflationary shock or significant pressure on bank profitability has eased.

Another important catalyst identified by the firm is Greece’s expected promotion to developed-market status by FTSE Russell, STOXX and MSCI over the coming months.

According to the report, the reclassification should improve liquidity and attract a broader base of international investors. Roemer Capital also said Euronext’s acquisition of the Athens Exchange is expected to strengthen market infrastructure and increase international visibility, particularly for Bank of Cyprus and Optima Bank.

The firm noted that Bank of Cyprus has already benefited from its Athens listing, with average daily trading value increasing from less than €400,000 before its September 2024 move to nearly €6 million afterwards.

Economic Momentum Remains A Core Tailwind

Roemer Capital said both Greece and Cyprus have moved beyond post-crisis recovery and are now supported by private-sector-led growth. For Cyprus, the report highlighted recent tax reform and efforts to simplify the legal and regulatory framework, while also noting that limited foreign banking competition continues to support domestic lenders.

Overall, Roemer Capital expects Greek and Cypriot banks to remain well-positioned for profitable loan growth over the coming years.

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