Portugal’s 1.9% Inflation Brings Cheaper Food, Energy and Mortgage Relief

The Portugal National Statistics Institute (INE) has trimmed its latest inflation estimate to 1.9% year-on-year for January, signalling that the upward pull on everyday prices is finally losing steam—and with it, a bit of pressure on household budgets.

Why This Matters

• Daily shopping may finally feel lighter: Unprocessed food price growth eased to 5.8%, down from 6.1% in December.

• Electricity & fuel are cheaper again: The energy component logged -2.2%, its third straight month in negative territory.

• Interest-rate outlook improves: Softer inflation nudges the European Central Bank closer to a rate-cut debate, something that could filter into Portuguese mortgage costs later this year.

• Official confirmation arrives 11 February: That’s when INE releases the full dataset most banks use for wage indexation and rent updates.

Inflation Is Nearly Back on Target

After peaking above 10% during the energy shock of 2022, Portugal’s headline CPI has slipped below the 2% threshold the European Central Bank treats as price stability. January’s 0.3-point drop from December reflects a broad slowdown, with core inflation (stripping out energy and fresh food) also sliding to 1.8%. On the European yardstick—the Harmonised Index of Consumer Prices—Portugal matches the euro-area average at 1.9%, reinforcing the country’s reputation as an inflation “middle-of-the-pack” performer.

What Is Cooling the Thermometer?

Several forces have converged:

Cheaper wholesale gas and crude keep utility bills in check.

Euro-wide demand softening has lowered factory-gate prices, easing imported inflation.

A stronger euro versus the dollar trims the cost of globally priced commodities.

Government fuel-tax freezes and selective VAT cuts are still in place for basic staples.

Analysts at the Bank of Portugal add that Portugal’s inflation tends to mirror the bloc average with a six-month lag, meaning the gentler figures seen in Germany and France last autumn are only now filtering through to Lisbon grocery aisles.

Policy Moves Turning Down the Heat

While monetary levers rest with Frankfurt, Lisbon has played its part. In the 2025 budget, the Finance Ministry cut personal-income-tax brackets, raised the minimum wage to €870, and kept subsidies on essential food VAT. On the monetary side, the ECB’s December pause on rate hikes—leaving the deposit rate at 4%—has taken some steam out of variable-rate mortgages, a main transmission channel in Portugal where two-thirds of home loans float with Euribor.

Eyes on Housing & Services

Inflation may be fading, but property prices are not. Bank valuations rose 17.3% last year, while online listings show a 13% jump in asking prices. Services—especially rents, telecoms, and motorway tolls—remain the stickiest slice of the basket. Economists warn that if wage gains near 4% stick, service providers could pass on those costs, keeping core inflation from falling much below the 1.5-2% band.

What This Means for Residents

• Variable-rate borrowers: Expect Euribor to edge lower only once the ECB signals clear rate cuts—possibly around summer. Until then, budgeting for flat payments is prudent.

• Savers: Cooling inflation means real returns on term deposits have turned positive for the first time in two years; shop around as banks quietly raise offers.

• Renters & landlords: The ceiling for this year’s legal rent update is tied to November’s CPI (2.2%), not the new 1.9%. Any drop below 2% now will cap next year’s increase, easing pressure on tenants.

• Shoppers: Price tags on fresh produce may soften further through spring harvests, but services—from Netflix to haircuts—are unlikely to discount.

The Road Ahead

INE’s flash data suggest Portugal is already brushing the ECB’s price-stability goal nearly a year earlier than Brussels once feared. Forecasters at the Bank of Portugal see full-year inflation averaging 2.0-2.1% in 2026, with risks tilted to the upside if wage deals outpace productivity or if fresh geopolitical shocks jolt energy markets.

For now, the message is clear: the worst of the recent cost-of-living crisis appears behind us, but vigilance—especially in housing and services—remains the order of the day.