The eurozone annual inflation rate was 2.0 percent in June 2025, an increase from 1.9 percent in May. A year earlier, the rate stood at 2.5 percent. In the European Union, the annual inflation rate reached 2.3 percent in June 2025, up from 2.2 percent in May, compared to 2.6 percent a year prior, according to figures published by Eurostat, the statistical office of the European Union.
Euro area (or eurozone) inflation refers to the 20 European Union member states that use the euro as their currency, while EU inflation encompasses all 27 EU member states, including those that haven’t adopted the euro. Essentially, the Euro area is a subset of the broader European Union when discussing inflation.
The lowest annual rates were recorded in Cyprus (0.5 percent), France (0.9 percent), and Ireland (1.6 percent). Conversely, the highest annual rates were seen in Romania (5.8 percent), Estonia (5.2 percent), and both Hungary and Slovakia (4.6 percent). Compared to May 2025, annual inflation decreased in five Member States while rising in twenty-two.
In June 2025, the largest contribution to the annual euro area inflation rate came from services (+1.51 percentage points), followed by food, alcohol, and tobacco (+0.59 percentage points), non-energy industrial goods (+0.13 percentage points), and energy (-0.25 percentage points).
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Comparisons with previous year’s growth
The euro zone navigated a challenging but pivotal year in 2024. Marked by sluggish recovery, persistent inflation, and shifting employment dynamics, the year highlighted the region’s resilience amidst continued global uncertainty. The latest economic figures and developments from 2024 provide a comprehensive snapshot of the euro zone’s performance and its prospects as it transitions into 2025.
Despite ongoing global and regional headwinds, the euro zone economy recorded marginal growth. Eurostat’s finalized figures revealed that the gross domestic product (GDP) increased by 0.9 percent in 2024, up from an earlier estimate of 0.7 percent. This marks a slight improvement over 2023’s 0.4 percent GDP growth, though the pace remains well below the historic average. In the final quarter of 2024, GDP rose by 0.2 percent compared to the previous quarter, owing to upward revisions prompted by better-than-expected economic activity in several member states. However, this modest gain followed earlier stagnation, with some months at or near zero growth and instances of mild contraction in major economies like Germany and France.
Impact of consumer behavior on growth
Regional performance varied significantly, with Spain and Portugal outpacing the euro zone average, achieving growth rates of 0.8 percent and 1.5 percent in Q4 respectively, driven by a surge in private consumption and robust export activity. In contrast, Germany and France both experienced minor contractions at the end of 2024, with GDP declines of -0.2 percent and -0.1 percent. Compared to Q4 2023, the euro zone’s year-on-year growth stood at 0.9 percent, underscoring the region’s struggle to regain stronger momentum.
Inflation remained a central concern in 2024. The annual inflation rate in the eurozone ended the year at 2.4 percent in December, up from 2.2 percent the previous month, but markedly lower than the 2.9 percent rate a year earlier. This easing is a sharp turnaround from the inflation spike of 2022, when rates had surged into double digits. Service prices, which comprise nearly 45 percent of the inflation index, rose by an annual 4.0 percent in December, maintaining upward pressure. The food, alcohol, and tobacco component contributed +2.7 percent annual inflation, stable from November, while growth in non-energy industrial goods was subdued at +0.5 percent, highlighting weak demand in manufacturing. Meanwhile, energy prices turned slightly positive in December, rebounding from earlier declines.
ECB’s policy adjustments
Inflation varied sharply across the bloc, with Ireland at 1.0 percent, Italy at 1.4 percent, and Luxembourg at 1.6 percent, while Romania, Hungary, and Croatia experienced higher rates at 5.5 percent, 4.8 percent, and 4.5 percent respectively. Service-driven inflation remained stubborn in several economies, pushing the European Central Bank (ECB) to maintain cautious policy stances.
Amid slow growth, the labor market proved a bulwark, with the euro zone’s unemployment rate falling to a record 6.2 percent in March 2025, down from 6.5 percent a year prior. Labor market stability was especially notable in Spain, Italy, Germany, and Austria, where employment rose modestly across much of the region. Despite a year marked by mixed growth, employment edged upward in Q4 2024 by 0.1 percent, and by 0.2 percent in the EU overall. However, challenges remained, as some year-end contractions in business activity translated to reduced hiring and non-renewal of temporary contracts, particularly in the manufacturing sector.
In terms of policy, the ECB implemented a series of interest rate cuts throughout 2024 amid abating inflation, lowering the key deposit rate to 2.75 percent by year-end from higher levels earlier in the inflationary cycle. Further cuts were expected as inflation targets approached 2 percent. The euro zone’s composite Purchasing Managers’ Index (PMI) hovered close to, but occasionally below, the expansion threshold of 50, reflecting subdued but stabilizing business sentiment, especially following marked contractions in late 2024. While manufacturing contracted for several months, the services sector showed resilience, helping to offset weaker industrial demand.
