Eurozone Inflation Falls Below Target

Source Credit : CNBC

Euro zone inflation fell below the European Central Bank’s 2% target in May, hitting a cooler-than-expected 1.9% on sharp declines in services, flash data from statistics agency Eurostat showed Tuesday.

Economists polled by Reuters had expected the May reading to come in at 2%, compared to the previous month’s 2.2% figure.

The closely watched services inflation print cooled significantly to 3.2% last month, compared to the previous 4% reading. So-called core inflation, which excludes energy, food, tobacco and alcohol prices, also eased, falling from 2.7% in April to 2.3% in May.

“May’s steep decline in services inflation, to its lowest level in more than three years, confirms that the previous month’s jump was just an Easter-related blip and that the downward trend in services inflation remains on track,” Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics said in a note.

Inflation has been moving back towards the 2% mark throughout 2025 amid uncertainty for the euro zone economy.

The latest figures will be considered by the European Central Bank as it prepares to make its next interest rate decision later this week. Back in April, the central bank took its key rate, the deposit facility rate, to 2.25% — nearly half of the high of 4% notched in the middle of 2023.

Markets were last pricing in an around 95% chance of interest rates being cut by a further 25-basis-points on Thursday. Given the widely anticipated upcoming interest rate trim, the Tuesday data might not strongly influence this week’s ECB decision, Allen-Reynolds said.

“But May’s inflation data strengthen the case for another cut at the following meeting in July,” he noted.