Eurozone Inflation: 1.9% – Below Target
- Eurozone inflation dipped to 1.9% in May, according to recent figures, marking the first time in seven months that it has fallen below the European Central Bank’s (ECB)...
- The May figure represents a decrease from April’s 2.2% and was also below the 2% anticipated by analysts in a Reuters poll.
- Following the data release, the euro experienced a slight dip, falling 0.3% to $1.141.
Eurozone inflation unexpectedly fell to 1.9% in May,finaly dipping below the European Central BankS (ECB) 2% target.This meaningful drop fuels speculation of additional interest rate cuts, a move that could offer relief to consumers and businesses. Core inflation and services inflation also decreased,adding further weight to expectations of easing monetary policy. With economists predicting further declines in price pressures, all eyes are on the ECB’s next move. News Directory 3 provides up-to-date analysis of these developments. What does this mean for the euro and future economic forecasts? Discover what’s next for the Eurozone.
Eurozone Inflation Falls Below ECB Target, Rate Cut Expected
Updated June 03, 2025
Eurozone inflation dipped to 1.9% in May, according to recent figures, marking the first time in seven months that it has fallen below the European Central Bank’s (ECB) 2% target. This growth has led economists to suggest that additional interest rate cuts are likely this year.
The May figure represents a decrease from April’s 2.2% and was also below the 2% anticipated by analysts in a Reuters poll. The last time inflation was below the 2% threshold was in september,when it briefly touched 1.7% after remaining above the target for over three years.
Following the data release, the euro experienced a slight dip, falling 0.3% to $1.141.
Diego Iscaro,an economist at S&P Global Market Intelligence,noted that the drop in inflation could “offset some of the headwinds on consumption stemming from a highly uncertain economic environment.” He anticipates further easing of price pressures due to a stronger euro, lower commodity prices, and a weaker labor market. Iscaro projects the ECB will lower its benchmark deposit rate from 2.25% to 1.5% in the third quarter.
The ECB is scheduled to make its next interest rate decision and update its inflation forecasts on Thursday. In March, the central bank predicted that inflation in the Eurozone would remain above target this year before decreasing to 1.9% in 2026.
Swaps markets continue to anticipate another quarter-point cut in the ECB’s benchmark interest rate on Thursday, which would bring the rate to 2%—the lowest in over two years and half the rate from June 2024, when the ECB began reducing borrowing costs. Markets have priced in two quarter-point cuts by this time next year.
Konstantin Veit,a portfolio manager at Pimco,stated before the figures were released that a cut this week would indicate the ECB is “entering the final stages of its rate-cutting cycle.”
Veit added, “Underlying cost pressures continue to dissipate, with wage pressures easing somewhat faster than previously expected.”
The core inflation rate, which excludes volatile food and energy prices, decreased to 2.3% in May from 2.7% in April. Services inflation, a closely monitored indicator of domestic price pressures, fell to 3.2%, the lowest since March 2022, after reaching 4% in April.
What’s next
The ECB’s upcoming decision on interest rates will be closely watched for further indications of monetary policy direction in response to the evolving inflation landscape.