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Germany’s consumer price growth remained unchanged in May, while Spain and Italy experienced a drop in inflation, signaling a potential disinflation trend throughout the eurozone.
According to preliminary figures from Germany’s Federal Statistical Office released on Friday, the annual inflation rate in the eurozone’s largest economy held steady at 2.1% for May 2025, slightly below the anticipated 2.2%.
On a monthly basis, consumer prices in Germany rose by just 0.1%, marking a slowdown from April’s increase of 0.4% and the weakest growth since January. Core inflation, which excludes food and energy costs, is estimated to have risen by 2.8% year-on-year, indicating persistent underlying inflationary pressures.
Spain and Italy Show Signs of Price Moderation
Disinflationary trends are also evident in Southern Europe. In Spain, the preliminary data reveals that the annual consumer price index fell to 1.9% in May, down from 2.2% in April, and below the predicted 2.1%.
This decline was primarily driven by lower prices in leisure and cultural services, along with more subdued electricity and transport costs compared to the previous year. Additionally, Spanish core inflation decreased by 0.3 percentage points to 2.1%.
Italy reported an annual inflation rate of 1.7% in May, down from 1.9% in April, aligning with market forecasts.
Eurozone Outlook and Policy Implications
The latest national data strengthen expectations that the euro area’s headline inflation will ease further when the aggregate figures for May are published next week. Median forecasts from economists suggest a decline from 2.2% in April to 2.1% in May.
Goldman Sachs has revised its eurozone inflation forecast downward to 1.95% year-on-year, down from a previous estimate of 1.99%. The bank also adjusted its core inflation forecast down by seven basis points to 2.37%, citing weaker underlying pressures in Germany.
With inflation trending closer to the European Central Bank’s (ECB) target of 2%, these findings lend support to expectations that the ECB may continue to ease interest rates at its upcoming meeting next week.
Muted Market Reactions
The euro traded at 1.1335 against the dollar post-Germany’s inflation report but was down 0.3% for the day. European government bond yields remained largely stable, with the German 10-year Bund yield steady at 2.53%.
Equity markets exhibited mixed performance; the Euro STOXX 50 index dipped 0.4% by mid-afternoon, while Germany’s DAX rose by 0.2%, reclaiming the 24,000 mark.
In related news, oil prices saw a sharp decline amid speculation that OPEC+ might increase production by more than 411,000 barrels per day in July. WTI crude futures fell over 1.5% to $60.2 (€55.3) per barrel, as Brent slid below $63 (€57.9).
Simultaneously, geopolitical tensions resurfaced after US President Donald Trump accused China of violating trade agreements, heightening concerns about potential tariff escalations.
Photo credit & article inspired by: Euronews
