Euro zone inflation fell below the European Central Bank’s 2% target in May, hitting a cooler-than-expected 1.9% as the services print eased sharply, flash data from statistics agency Eurostat showed Tuesday.

Economists polled by Reuters had expected the May reading to come in at 2%, compared to the previous month’s 2.2% figure.

The closely watched services inflation print cooled sharply, amounting to 3.2% last month, compared to the previous 4% reading. So-called core inflation, which excludes energy, food, tobacco and alcohol prices, also eased, falling from 2.7% in April to 2.3% in May.

“May’s steep decline in services inflation, to its lowest level in more than three years, confirms that the previous month’s jump was just an Easter-related blip and that the downward trend in services inflation remains on track,” Jack Allen-Reynolds, deputy chief euro zone economist at Capital Economics said in a note.

Inflation has been moving back towards the 2% mark throughout 2025 amid uncertainty for the euro zone economy.

The latest figures will be considered by the European Central Bank as it prepares to make its next interest rate decision later this week. Markets were last pricing in an around 95% chance of interest rates being cut by a further 25-basis-points on Thursday.

Back in April, the central bank took its key rate, the deposit facility rate, to 2.25% — nearly half of the high of 4% notched in the middle of 2023.

But the global economic outlook remains muddied. U.S. President Donald Trump’s protectionist tariff plans have been casting shadows over the global economic outlook, with his so-called “reciprocal” duties — which are also set to affect the European Union — widely seen as harmful to economic growth. Their immediate potential impact on inflation is less clear, with central bank policymakers and analysts noting that it could depend on any potential countermeasures.

Despite the transatlantic tumult, the Organisation for Economic Co-operation and Development in its latest Economic Outlook report out on Tuesday said it was expecting the euro area to expand by 1% in 2025, unchanged from its previous forecast. Euro area inflation is meanwhile projected to come in at 2.2% this year, also in line with the March report.

Euro country bond yields were last lower after the fresh inflation data, with the German 10-year bond yield falling by over two basis points to 2.499%, while the yield on the French 10-year bond was last down by more than one basis point to 3.169%.

The euro was meanwhile last around 0.3% lower against the dollar.

Economic growth forecasts for the U.S. and globally were cut further by the Organisation for Economic Co-operation and Development as President Donald Trump’s tariff turmoil weighs on expectations.

The U.S. growth outlook was downwardly revised to just 1.6% this year and 1.5% in 2026. In March, the OECD was still expecting a 2.2% expansion in 2025.

The fallout from Trump’s tariff policy, elevated economic policy uncertainty, a slowdown of net immigration and a smaller federal workforce were cited as reasons for the latest downgrade.

Global growth, meanwhile, is also expected to be lower than previously forecast, with the OECD saying that “the slowdown is concentrated in the United States, Canada and Mexico,” while other economies are projected to see smaller downward revisions.

“Global GDP growth is projected to slow from 3.3% in 2024 to 2.9% this year and in 2026 … on the technical assumption that tariff rates as of mid-May are sustained despite ongoing legal challenges,” the OECD said.

It had previously forecast global growth of 3.1% this year and 3% in 2026.

“The global outlook is becoming increasingly challenging,” the report said. “Substantial increases in barriers to trade, tighter financial conditions, weaker business and consumer confidence and heightened policy uncertainty will all have marked adverse effects on growth prospects if they persist.”

Frequent changes regarding tariffs have continued in recent weeks, leading to uncertainty in global markets and economies. Some of the most recent developments include Trump’s reciprocal, country-specific levies being struck down by the U.S. Court of International Trade, before then being reinstated by an appeals court, as well as Trump saying he would double steel duties to 50%.

The OECD adjusted its inflation forecast, saying “higher trade costs, especially in countries raising tariffs, will also push up inflation, although their impact will be offset partially by weaker commodity prices.”

The impact of tariffs on inflation has been hotly debated, with many central bank policymakers and global analysts suggesting it remains unclear how the levies will impact prices, and that much depends on factors like potential countermeasures.

The OECD’s inflation outlook shows a notable difference between the U.S. and some of the world’s other major economies. For instance, while G20 countries are now expected to record 3.6% inflation in 2025 — down from 3.8% in March’s estimate — the projection for the U.S. has risen to 3.2%, up from a previous 2.8%.

U.S. inflation could even be closing in on 4% toward the end of 2025, the OECD said.