Eurozone inflation fell to 1.9% in May, falling below the European Central Bank’s (ECB) 2% target for the first time since 2021. This decline, driven by falling energy costs and a sharp slowdown in services inflation, reinforces expectations that the ECB will cut interest rates to support economic growth.
Core inflation, which excludes volatile items like energy and food, eased from 2.7% to 2.3%, while services inflation fell from 4.0% to 3.2%. The ECB’s benchmark deposit rate currently stands at 2.25%, having been raised to combat the inflation surge seen between 2021 and 2023. Analysts widely expect a 25-basis-point cut at the upcoming ECB meeting, with further easing possible later in the year.
While short-term inflation appears to be under control, longer-term pressures remain a concern. Analysts warn of uncertainty from rising geopolitical tensions and global trade disruptions from escalating U.S. tariffs, which threaten to slow Europe’s export-dependent economy. The European Commission recently downgraded its eurozone growth forecast from 1.3% to 0.9% for 2025 in response to these risks.
