Inflation in the euro area fell more than expected in May, which reinforced expectations that the European Central Bank (ECB) will announce a new interest rate cut at its meeting on Thursday, reports "Euronews".

According to Eurostat's flash estimate, annual consumer price growth slowed to 1.9% in May from 2.2% in April. The figure came in below economists' 2% forecast and marks the first time inflation has fallen below the ECB's 2% target since September 2024.

The fall in headline inflation suggests that business uncertainty, partly driven by renewed global trade tensions and weak consumer demand, is weighing on pricing power across all sectors.

Underlying inflation, which excludes volatile food and energy prices, also showed signs of weakening. It slowed to 2.4% in May from 2.7% in April, remaining below expectations of 2.5%. On a monthly basis, core prices rose by only 0.1%.

Among the main components of inflation, food, alcohol and tobacco remained the strongest drivers, rising 3.3% year-on-year from 3% in April. Services inflation, which had been particularly resilient, fell sharply from 4.0% to 3.2%, contributing significantly to the broader slowdown.

Non-energy manufactured goods posted a steady 0.6% annual increase, while energy prices continued their downward trajectory, declining 3.6% from a year earlier.

On a month-on-month basis, headline inflation was unchanged, having risen by 0.6% in April, signalling a marked slowdown in momentum.

The highest annual rates were recorded in Estonia (4.6%), Slovakia and Croatia (both 4.3%). The lowest inflation was recorded in France, at just 0.6%, indicating a strong divergence in price pressures among euro area members.

Monthly inflation was highest in Portugal and Croatia, where prices rose by 0.7% and 0.6% respectively. In contrast, deflationary rates were observed in Belgium, Spain, France, Lithuania, the Netherlands, Austria and Slovenia.

In a separate announcement, Eurostat reported that the unemployment rate in the euro area fell to 6.2% in May from 6.3% in March and 6.4% a year earlier.

The euro lost ground against the dollar after the inflation announcement, falling to $1.1400 as investors began to fully factor in the 25 basis point cut in the ECB's deposit facility rate. This cut will bring the deposit facility rate to 2%, its lowest level since January 2023. | BGNES