On April 19, 2025, shoppers will buy fresh vegetables, fruits and herbs at the outdoor agricultural market.
Michael Nguyen/Nurphoto via Getty Images
Eurozone inflation rates fell below the European Central Bank’s 2% target in May, with a sharp drop in services reaching 1.9% cooler than expected, flash data from statistics agency Eurostat showed on Tuesday.
The economists voted in Reuters had expected reading to arrive at 2% in May, compared to the 2.2% figure for the previous month.
The closely monitored service inflation print cooled significantly to 3.2% last month compared to the previous 4% reading. The so-called core inflation, which excludes energy, food, tobacco and alcohol prices, has also eased, falling from 2.7% in April to 2.3% in May.
“The sharp decline in May’s service inflation has dropped to its lowest level in over three years, with the previous month’s jump being Easter-related blips, confirming the downward trend of service inflation is on track.”
Amidst the uncertainty of the eurozone economy, inflation has returned to the 2% mark throughout 2025.
The latest figures will be considered by the European Central Bank as they prepare to make their next interest rate decision later this week. Back in April, the central bank raised its deposit facility fees to 2.25%. In mid-2023 there was almost half of 4%.
The market was the last priced price on Thursday with a roughly 95% chance that interest rates would be reduced by 25 more points. Given the widely expected future interest rate trim, Tuesday’s data may not strongly affect the ECB’s decision this week, Allen Reynolds said.
“However, inflation data for May will bolster another case of cuts at the next meeting in July,” he noted.
However, the global economic outlook remains muddy. US President Donald Trump’s protectionist tariff plans have cast a shadow over the global economic outlook, with so-called “mutual” obligations set to affect the European Union. Their direct potential impact on inflation is less clear, as central bank policymakers and analysts point out that they may rely on potential measures.
Despite the transatlantic turmoil, the organisation for economic cooperation and development in Tuesday’s latest economic outlook report said it expects the eurozone to expand by 1% in 2025, as it remains unchanged from previous forecasts. Meanwhile, inflation in the Euro area is projected to reach 2.2% this year, in line with March’s report.
Euro countries’ bond yields were last lower after fresh inflation data, with Germany’s 10-year bond yield falling above 2 basis points to 2.499%, while France’s 10-year bond yield fell by more than one last to 3.169%.
Meanwhile, the euro continued to be about 0.3% lower against the dollar.
