Euro zone inflation drops to 1.9% in May: ECB's interest rate decision looms
Shreeaa Rathi | Jun 04, 2025, 22:52 IST
( Image credit : AP, TOIGLOBAL )
In May, inflation within the Euro zone eased to 1.9%, as reported by Eurostat, dipping below the European Central Bank's target of 2%. This reduction is primarily attributed to a decline in service costs. The ECB is expected to take these figures into account for its forthcoming interest rate decisions.
Euro zone inflation decreased to 1.9% in May, according to Eurostat data, falling below the European Central Bank's (ECB) 2% target, which economists had anticipated 2%; the decline is attributed to sharp decreases in services, and the figures will be reviewed by the ECB as it prepares for its upcoming interest rate decision. The drop in inflation has led to reactions in bond yields and currency values, while broader economic forecasts remain steady despite global uncertainties.
Euro zone inflation fell to 1.9% in May, according to flash data from Eurostat. This figure is below the European Central Bank's 2% inflation target. Economists polled by Reuters had expected the May reading to come in at 2%.
The closely watched services inflation print cooled significantly to 3.2% last month, compared to the previous 4% reading. Core inflation, excluding energy, food, tobacco and alcohol prices, also eased, falling from 2.7% in April to 2.3% in May.
The latest figures will be considered by the European Central Bank as it prepares to make its next interest rate decision later this week. Back in April, the central bank took its key rate, the deposit facility rate, to 2.25% — nearly half of the high of 4% notched in the middle of 2023.
Markets were last pricing in an around 95% chance of interest rates being cut by a further 25-basis-points on Thursday.
Euro country bond yields were last lower after the fresh inflation data, with the German 10-year bond yield falling by over two basis points to 2.499%, while the yield on the French 10-year bond was last down by more than one basis point to 3.169%. The euro was meanwhile last around 0.3% lower against the dollar.
"May's steep decline in services inflation, to its lowest level in more than three years, confirms that the previous month's jump was just an Easter-related blip and that the downward trend in services inflation remains on track," Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics said in a note.
Inflation has been moving back towards the 2% mark throughout 2025 amid uncertainty for the euro zone economy.
Given the widely anticipated upcoming interest rate trim, the Tuesday data might not strongly influence this week's ECB decision, Allen-Reynolds said.
"But May's inflation data strengthen the case for another cut at the following meeting in July," he noted.
Despite the transatlantic tumult, the Organisation for Economic Co-operation and Development in its latest Economic Outlook report out on Tuesday said it was expecting the euro area to expand by 1% in 2025, unchanged from its previous forecast. Euro area inflation is meanwhile projected to come in at 2.2% this year, also in line with the March report.
U.S. President Donald Trump's protectionist tariff plans have been casting shadows over the global economic outlook, with his so-called "reciprocal" duties — which are also set to affect the European Union — widely seen as harmful to economic growth. Their immediate potential impact on inflation is less clear, with central bank policymakers and analysts noting that it could depend on any potential countermeasures.
Euro zone inflation fell to 1.9% in May, according to flash data from Eurostat. This figure is below the European Central Bank's 2% inflation target. Economists polled by Reuters had expected the May reading to come in at 2%.
The closely watched services inflation print cooled significantly to 3.2% last month, compared to the previous 4% reading. Core inflation, excluding energy, food, tobacco and alcohol prices, also eased, falling from 2.7% in April to 2.3% in May.
The latest figures will be considered by the European Central Bank as it prepares to make its next interest rate decision later this week. Back in April, the central bank took its key rate, the deposit facility rate, to 2.25% — nearly half of the high of 4% notched in the middle of 2023.
Markets were last pricing in an around 95% chance of interest rates being cut by a further 25-basis-points on Thursday.
Euro country bond yields were last lower after the fresh inflation data, with the German 10-year bond yield falling by over two basis points to 2.499%, while the yield on the French 10-year bond was last down by more than one basis point to 3.169%. The euro was meanwhile last around 0.3% lower against the dollar.
"May's steep decline in services inflation, to its lowest level in more than three years, confirms that the previous month's jump was just an Easter-related blip and that the downward trend in services inflation remains on track," Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics said in a note.
Inflation has been moving back towards the 2% mark throughout 2025 amid uncertainty for the euro zone economy.
Given the widely anticipated upcoming interest rate trim, the Tuesday data might not strongly influence this week's ECB decision, Allen-Reynolds said.
"But May's inflation data strengthen the case for another cut at the following meeting in July," he noted.
Despite the transatlantic tumult, the Organisation for Economic Co-operation and Development in its latest Economic Outlook report out on Tuesday said it was expecting the euro area to expand by 1% in 2025, unchanged from its previous forecast. Euro area inflation is meanwhile projected to come in at 2.2% this year, also in line with the March report.
U.S. President Donald Trump's protectionist tariff plans have been casting shadows over the global economic outlook, with his so-called "reciprocal" duties — which are also set to affect the European Union — widely seen as harmful to economic growth. Their immediate potential impact on inflation is less clear, with central bank policymakers and analysts noting that it could depend on any potential countermeasures.