Eurozone Inflation Slows More Than Expected in May

Inflation in the Eurozone eased to 1.9% in May, down from 2.2% in April and below the consensus forecast of 2.0%. The slowdown was driven by a drop in energy prices and a marked decline in services inflation.

Core inflation—which excludes volatile components such as energy and food and is closely monitored by the European Central Bank (ECB) as an indicator of underlying price pressures—also eased, falling to 2.3% in May from 2.7% in April. This was lower than the expected 2.4%.

The sharper-than-expected decline in consumer prices was primarily attributed to falling energy costs and a significant drop in inflation in the services sector.

This cooling of inflation reduces pressure on the ECB, which has already cut interest rates seven times over the past eleven months. The central bank is widely expected to announce another 25-basis-point rate cut to 2.0% at its upcoming policy meeting on Thursday, June 5.

The consistent downward trend in inflation has led some economists to predict that consumer prices could soon fall below the ECB’s 2% target. Contributing factors include persistently low energy prices, a strong euro, sluggish economic growth, and stagnating wage growth.

In this context, economists anticipate at least one more rate cut in 2025, with the current policy rate considered neutral—neither stimulating nor restricting growth. However, analysts remain cautious about potential upside risks to inflation, particularly from geopolitical instability and the possibility of escalating trade tensions.