Eurozone Inflation Slows to 1.9% in May, Below ECB Target

Eurozone HICP Inflation Eases to 1.9% in May, Below Expectations

The Eurozone Harmonized Index of Consumer Prices (HICP) slowed to 1.9% year-on-year (YoY) in May, down from 2.2% in April, according to Eurostat data released on Tuesday. This figure misses the market consensus of 2%, and falls below the European Central Bank’s (ECB) official inflation target of 2%.

Core Inflation Also Softens

The more reliable gauge of underlying inflation, core HICP, which excludes volatile items like energy and food, also declined to 2.3% YoY, down from 2.7% in April, and below the forecast of 2.5%.

Month-over-month (MoM), headline HICP was flat at 0.0%, compared to a 0.6% rise in April, while core HICP also posted 0.0%, easing from a 1.0% MoM gain previously.

What This Means for the ECB

These weaker-than-expected inflation readings are likely to reinforce expectations that the ECB will proceed with a rate cut at its upcoming meeting. The central bank has already signaled a potential easing cycle amid slowing price pressures and weakening economic activity.

“With inflation now below the ECB’s 2% target, and core pressures easing, policymakers will feel justified in moving forward with a rate cut,” analysts at Tredu note.

Related Tredu Insights:

• EUR/USD Holds Ahead of Eurozone CPI Data
• Why ECB’s 2% Inflation Target Matters for EUR Traders
• Will the ECB Cut Rates in June? Market Outlook