Eurozone inflation has unexpectedly slowed, dropping below the European Central Bank's (ECB) target of 2%, which could justify further interest rate cuts. Recent data reveals that consumer prices rose by 1.9% in May compared to the same period last year, down from 2.2% in April and below economists' median forecast of 2%. The core inflation rate, excluding volatile items like food and energy, decreased to 2.3%, with notable easing in service sector inflation pressures.
This marks the first time in eight months that overall inflation has not exceeded the target, and only the second instance since mid-2021. Inflation spiked to a record high of 10.6% in October 2022, driven by the Russian invasion of Ukraine and the subsequent energy crisis.
The data release coincides with the ECB's upcoming two-day policy meeting. With inflation under control and looming trade tensions between the U.S. and Europe, markets are largely anticipating a 25 basis point cut in the ECB's deposit rate to 2%.
