Eurozone's Inflation Drops to 1.9% in May: A Possible Signal for Rate Cut by ECB
Inflation in the Eurozone moderated to 1.9% in the month of May. - Euro area inflation rate dipped down to 1.9% in May's figures.
The Eurozone's inflation rate took a significant dip in May, with services and energy prices showing notable decreases, as reported by Eurostat. Services inflation fell to 3.2% year-on-year from a high of 4.0% in April, while the prices for food, alcohol, and tobacco increased by 3.3%, slightly higher than the previous month's figure. Energy prices, on the other hand, saw a drop of 3.6% compared to the same month last year.
Estonia, Slovakia, and Croatia recorded the highest inflation rates in the Eurozone, at 4.6%, 4.3%, and 4.3% respectively. Conversely, Cyprus, France, and Ireland experienced the lowest increases at 0.4%, 0.6%, and 1.4% respectively. Provisional data suggests that inflation in Germany stood at 2.1% in May, which is in line with Eurostat's estimates and the previous week's forecast by the German Federal Statistical Office.
The lower-than-expected inflation rate could pave the way for additional interest rate cuts by the European Central Bank (ECB) during its meeting on Thursday. Given the weakening economy and escalating trade tensions, experts predict a 0.25 percentage point cut - marking the seventh consecutive cut.
- Eurozone
- Inflation
- Year-on-year
- Eurostat
- ECB
- Interest Rate Cuts
- Price Increase
- Economic Slowdown
- Trade Wars
Over the past few years, the European Central Bank's (ECB) approach towards inflation in the Eurozone has undergone significant changes. After a prolonged period of above-target inflation, eurozone inflation dropped to 1.9% in May 2025, sliding beneath the ECB’s 2% target for the first time since September 2024. In response to this downward trend, the ECB has implemented a series of interest rate cuts.
Recently, the ECB announced a 0.25 percentage point cut, lowering the key rate to 2.00%. This was the eighth such rate cut since June 2024, indicating the bank's commitment to looser monetary policy. Christine Lagarde, ECB President, has emphasized that future policy decisions will be driven by incoming economic data. If the current trend persists, the ECB may be nearing the end of its rate cut cycle, but it remains prepared to act if necessary.
In their latest staff projections, the ECB expects inflation to stabilize and reach 2% in 2025, before gradually declining to 1.6% in 2026 and returning to the target rate of 2% in 2027. The bank, however, remains mindful of potential disinflationary risks such as deeper economic slowdowns or escalating trade wars, which could necessitate further monetary easing.
- The European Central Bank (ECB) has implemented a series of interest rate cuts in response to the downward trend in Eurozone inflation, which dropped to 1.9% in May 2025, falling below the ECB’s 2% target for the first time since September 2024.
- In their latest staff projections, the ECB expects inflation to stabilize and reach 2% in 2025, but remains mindful of potential disinflationary risks such as deeper economic slowdowns or escalating trade wars, which could necessitate further monetary easing and employment policy modifications in the business and finance sectors.
