Fresh inflation data released this morning from several European economies paint a nuanced picture of the continent’s pricing environment. While some countries show signs of cooling inflation, others remain resilient, or even demonstrate renewed price pressures. The data come at a pivotal moment for the European Central Bank (ECB), as markets brace for upcoming monetary policy decisions.

Germany: Annual Inflation Holds Steady, but Monthly Pace Slows

Germany, the eurozone’s largest economy, reported a stable annual inflation rate. The Consumer Price Index (CPI) for May rose 2.1% year-over-year, in line with both market expectations and the previous month’s print. On a monthly basis, however, CPI rose by only 0.1%, significantly lower than April’s 0.4% increase, indicating a potential deceleration in underlying inflation pressures.

This combination of stable annual inflation and softening monthly growth may be viewed positively by the ECB, suggesting that rate hikes to date are beginning to curb demand-side pressures.

France: Sharp Monthly Declines Raise Questions

France delivered a notable surprise with sharp declines in both core inflation indicators. The monthly CPI fell by 0.1%, matching expectations, but marking a stark contrast from April’s 0.6% increase. The Harmonized Index of Consumer Prices (HICP) dropped by 0.2% month-over-month, compared to a 0.7% increase previously.

These drops could reflect seasonal volatility, energy price corrections, or a lagging effect of tighter fiscal and monetary conditions. Nonetheless, they may support the case for a more cautious ECB stance in the near term.

Spain: Elevated Inflation Despite Modest Deceleration

Spain’s May inflation figures came in slightly below the previous month but still above expectations. Both the national CPI and HICP rose 2.0% year-over-year, down from 2.2% in April, but exceeding the forecast of 1.9%.

Although decelerating, inflation in Spain remains comparatively high, suggesting persistent price pressures in certain sectors such as housing and food. The higher-than-expected print may complicate any ECB pivot toward monetary easing in the second half of 2025.

Sweden: A Stark Contrast in Nordic Disinflation

Though not a member of the eurozone, Sweden’s inflation data provides a relevant comparative benchmark. The country’s CPI rose 0.1% month-over-month, while the annual rate slowed to 0.2%, down from 0.3% in April.

Sweden’s ultra-low inflation reflects ongoing disinflationary forces in Northern Europe and underscores the regional divergence within the broader European economic landscape.

Looking Ahead: ECB Faces a Fragmented Policy Puzzle

The latest data present a challenging mosaic for policymakers. With Germany and France showing signs of moderation, and Spain continuing to exhibit elevated price pressures, the ECB must weigh these national divergences when considering future rate moves.

This inflation data joins a broader mix of recent macro indicators—including slowing German industrial output, improving French employment, and tightening fiscal policies in Italy—that collectively support a more cautious stance from Frankfurt. Markets are now pricing in a possible pause or even a strategic shift in ECB rhetoric over the coming months.

Conclusion

Europe’s inflation profile remains fragmented. France and Germany signal a slowdown in pricing momentum, while Spain still reflects inflationary resilience. Sweden, meanwhile, illustrates a sharp contrast with nearly flat inflation. For the ECB, navigating this uneven terrain will require a careful balance between stabilizing prices and sustaining growth as 2025 progresses.