Eurozone Inflation Falls Below ECB Target

Consumer price inflation in the Eurozone eased to 1.9% year-on-year in May 2025, down from 2.2% in April and falling just below market expectations of 2.0%, according to preliminary estimates.

This marks the first time since September 2024 that inflation has dropped below the European Central Bank’s 2% target, reinforcing expectations of a 25 basis point rate cut later this week and raising the prospect of additional easing in the months ahead.

Services and Energy Drive Disinflation

The primary driver behind the decline was a sharp drop in services inflation, which fell to 3.2% from 4.0%, its lowest level since March 2022. Energy prices also continued to weigh on the headline figure, declining 3.6% year-on-year. Meanwhile, inflation in non-energy industrial goods remained unchanged at 0.6%.

Food Prices Remain Elevated

While most categories showed cooling inflation, prices for food, alcohol, and tobacco rose by 3.3%, up from 3.0% in April, indicating persistent cost pressure in essential goods.

Core Inflation Hits Three-Year Low

Core inflation, which excludes food and energy, slowed to 2.3%, the lowest rate recorded since January 2022. The steady deceleration in core prices supports the ECB’s case for policy loosening as underlying inflationary pressures continue to ease.

Source: Eurostat

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