Eurozone Inflation Falls Below 2% Target To Boost ECB Rate Cut Hopes

(RTTNews) - Euro area inflation fell below the 2 percent target in May largely due to the slowdown in services inflation and reinforced expectations for another interest rate reduction from the European Central Bank later this week.

Inflation softened more-than-expected to 1.9 percent in May from 2.2 percent in April, figures from Eurostat revealed on Tuesday. The rate was expected to slow to 2.0 percent.

Core inflation that strips out prices of energy, food, alcohol and tobacco, slowed to 2.3 percent from 2.7 percent. The rate was forecast at 2.4 percent.

Headline inflation has been hovering near the ECB's target and fell below 2 percent for the first time since September 2024. The disinflation process has given policymakers the leeway to cut interest rates as soon as this month.

The next policy announcement is due on June 5. The central bank has already reduced interest rates for six straight policy sessions.

ING economist Bert Colijn said the ECB can comfortably lower the deposit rate to 2 percent this week and have a good debate about whether it should move rates below neutral to become accommodative for the economy.

On a monthly basis, the harmonized index of consumer prices remained flat in May, data showed. Among components of HICP, the annual increase in food, alcohol and tobacco prices advanced to 3.3 percent from 3.0 percent. Meanwhile, energy prices posted a steady decline of 3.6 percent.

Non-energy industrial goods prices rose 0.6 percent, the same rate of increase as seen over the past three months. By contrast, services inflation slowed to 3.2 percent from 4.0 percent in the previous month.

Separate official data showed that the unemployment rate in the currency bloc fell for the first time in four months in April. The jobless rate dropped to an adjusted 6.2 percent from 6.3 percent in March. The latest rate was the lowest since December when it was at the same level.

The youth jobless rate, which applies to those under the age of 25, fell to 14.4 percent from 14.8 percent in March.