Eurozone inflation drops ecb expected to cut rates again

The European Central Bank (ECB) is poised to cut interest rates further this week as inflation in the eurozone has fallen below the 2 per cent target for the first time since September 2024. According to Eurostat, annual consumer price inflation across the single currency area stood at 1.9 per cent in April, undershooting expectations of 2.1 per cent. This marks a significant shift in the bloc’s inflation trajectory.

Slowing inflation in the services sector, which reached a three-year low of 3.2 per cent, has also provided additional relief for policymakers. The ECB, under the leadership of Christine Lagarde, had already reduced rates in April to 2.25 per cent amid concerns over the adverse economic impacts of US tariffs.

President Trump’s unpredictable trade policies have contributed significantly to the current economic landscape. Import levies are anticipated to bring cheaper goods to Europe, strengthening the euro against the dollar and lowering imported inflation. Analysts suggest this is creating favourable conditions for the ECB to maintain its disinflationary policy.

A forecast by investment experts indicates that inflationary pressures are fading across the eurozone. Christophe Boucher, chief investment officer at ABN AMRO, noted, “Europe is close to overcoming the inflation battle, largely due to weakening wage growth and reduced risks of imported price rises.”

Markets have almost entirely priced in a quarter-percentage point rate cut this Thursday, potentially lowering the ECB’s main deposit rate to 2 per cent. Predictions further suggest that rates could be slashed to as low as 1.5 per cent later this year as the central bank looks to combat deflationary risks.

Compared to the eurozone’s inflation rate of 1.9 per cent, the UK recorded inflation at 3.5 per cent, and the US at 2.5 per cent. Analysts believe the eurozone may sustain inflation below 2 per cent until at least 2027. These trends have also affected market activity, with the euro weakening against both the US dollar and the British pound amid ongoing economic adjustments.