Eurozone Inflation: What to Expect from May's Data

Core inflation, which shows prices without volatile components such as energy and food, is expected to have risen by 2.3% year on year in May, down from April’s 2.7%.

In April 2025, service inflation remained the main driver of headline inflation (HICP), with its contribution at 1.80 percentage points. The contribution of food, alcohol and tobacco stood at 0.57 percentage points, and the contribution of energy at -0.35 percentage points. Non-energy industrial goods provided a 0.15 percentage points boost.

Will Service Inflation Surprise on the Upside Again?

After service inflation spiked in April, economists are looking at May data to find out if it will surprise on the upside again. In a note on May 23, Goldman Sachs said the upcoming data release should see an unwinding of the previous spike in services inflation, which was driven by the timing of Easter.

“We estimate that airfares, hospitality-related components and package holidays were the main drivers behind the upside surprise,” the bank’s economists added.

Taking into account just released French data, which was weaker than expected, Goldman Sachs predicted that eurozone core inflation will be at 2.44% in May.

Riccardo Marcelli Fabiani, senior economist at Oxford Economics, forecasts a decline in service inflation after the April spike.

“Going forward, a further deceleration in wage growth will help disinflation in services. The component is the most closely watched by the ECB due to its role in informing on underlying inflation dynamics and its weight in core inflation.”

Inflation in non-energy goods will probably remain close to zero, he said, and lower commodity prices will keep energy inflation low, easing inflationary pressures in the wider economy.

Will the ECB Cut Interest Rates in June?

The next European Central Bank’s monetary policy meeting will take place in Frankfurt on June 5, and markets expect another interest rate cut amid economic headwinds and the unpredictability of US tariffs. In April the ECB cut rates for the seventh time in the current monetary cycle to 2.25% for the deposit rate.

Isabel Schnabel, member of the ECB’s Executive Board, recently said that US tariffs could put upward pressure on prices via the impact on supply chains, making the case for policy rates to stay close to their current levels. However, she also acknowledged that there are disinflationary forces at work. The Bank of England said in May that in the most likely scenario, tariffs will have a disinflationary effect.

“Eurozone interest rates are significantly less restrictive since the ECB kicked off its easing cycle in June 2024,” said Grant Slade, international economist at Morningstar, who predicts that the flash inflation estimate will remain largely unchanged relative to April’s reading. He added that “meaningful slack remains in place in Germany’s labor market, the eurozone’s largest economy, while wage growth continues to slow more broadly across the eurozone’s economies.”

“We think this provides scope for further monetary easing in June from the ECB,” he added.

Irene Lauro, eurozone economist at Schroders, said that the risks to the inflation outlook “remain elevated” especially given the uncertainty surrounding trade negotiations and their impact on prices. US President Donald Trump recently threatened the European Union with 50% tariffs, before retracing, but the US and EU have yet to make a trade deal.

The asset manager now expects that June will see the last rate cut this year, taking the deposit rate to 2%, with the range of neutral interest rates.

Lauro said that talk of rate hikes in 2026 seem premature “given the slowdown in inflation and the bank’s highly data-dependent approach in an environment of uncertainty.”

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