Eurozone consumer price inflation eased to 1.9% year-on-year in May 2025, down from 2.2% in April and below market expectations of 2.0%, according to a preliminary estimate.
Eurozone inflation falls below ECB target in May
This marks the first time inflation has fallen below the European Central Bank’s (ECB) 2.0% target since September 2024, reinforcing expectations for a 25 basis point rate cut later this week and raising the possibility of further monetary easing if the trend continues. The slowdown in inflation reflects a complex interplay of factors shaping the region’s economic outlook amid a cautiously recovering but still fragile environment.
A key driver of the deceleration was a pronounced slowdown in services inflation, which dropped sharply to 3.2% from 4.0% in April, marking its lowest level since March 2022. This cooling in the services sector suggests weakening demand and moderated price pressures, possibly influenced by softer wage growth and subdued consumer spending amid ongoing geopolitical and economic uncertainties. Energy prices continued their decline, falling by 3.6% year-on-year, contributing significantly to the overall disinflation trend. Meanwhile, inflation for non-energy industrial goods remained steady at a modest 0.6%, indicating stable but muted price growth in this segment.
In contrast, prices for food, alcohol, and tobacco accelerated, rising 3.3% compared with 3.0% the previous month, reflecting supply chain challenges and higher agricultural commodity costs that continue to exert upward pressure on essential goods. This divergence highlights the uneven nature of inflationary forces across different sectors of the economy.
Core inflation data
Meanwhile, core inflation—which excludes the more volatile food and energy components—slipped to 2.3%, marking the lowest reading since January 2022. The decline in core inflation signals easing underlying price pressures, which may prompt the ECB to maintain or increase its accommodative stance to support economic growth and ensure inflation moves sustainably toward its target.
Looking ahead, market participants will be closely monitoring upcoming economic data and ECB communications for further clues on the central bank’s policy trajectory. The latest inflation figures add to growing expectations that the ECB may embark on a series of rate cuts or other stimulus measures to counteract slowing price growth and bolster the eurozone economy amid persistent global risks.
