Across the European Union, the annual inflation rate was 2.2% in May, down from 2.4% in the previous month. In May 2024, the inflation rate for the EU was 2.7%.

Countries with the Lowest and Highest Inflation Rates

In May, the lowest annual inflation rates were recorded in Cyprus (0.4%), France (0.6%), and Ireland (1.4%). On the other hand, the highest inflation rates were seen in Romania (5.4%), Estonia (4.6%), and Hungary (4.5%).

On a monthly basis, annual inflation fell in 14 member states, remained stable in one, and rose in 12.

Main Contributors to Inflation

According to the May 2025 data, the largest contribution to Euro area inflation came from the services sector (+1.47 percentage points). This was followed by food, alcohol, and tobacco (+0.62 pp), non-energy industrial goods (+0.16 pp), and energy, which had a negative impact (-0.34 pp).

In particular, there was an increase in the contribution from processed food, alcohol, and tobacco, while the decline in energy prices stood out as a disinflationary factor.

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Eurozone Inflation Lower Than Expected in February

Eurozone inflation decreased more than previously estimated in February, driven by a slowdown in consumer price growth in Germany. According to revised data released by Eurostat, inflation in the 20 euro-using countries was 2.3% in February, lower than the initially reported 2.4%, aligning with economists’ expectations. In Germany, the annual consumer price increase slowed to 2.6% in February, down from the previously forecasted 2.8%.

This decline eased concerns that unexpectedly strong price pressures could hinder expected interest rate cuts by the European Central Bank (ECB). The ECB has stated that uncertainty is extremely high, so it will make its decision after collecting as much data as possible.

The ECB will also factor in trade tensions, increased budget spending, the burden of financing Ukraine’s defense, and falling energy costs. Current market expectations suggest a 50-60% chance of an interest rate cut in April, with a rate cut likely to be confirmed by June. Another rate cut is expected by the end of the year, bringing the ECB’s deposit rate to 2%. The ECB forecasts inflation to oscillate around current levels for the rest of the year, before falling to its 2% target in the first quarter of 2026.

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