Eurozone Inflation Falls Close to Target as Unemployment Hits New Low

By Joshua Kirby

The annual rate of inflation in the eurozone edged closer to the European Central Bank's target last month as the currency area's unemployment rate fell to a fresh record low.

Consumer prices were 2.2% higher in March than in the same month last year, an inflation rate that was down from 2.3% in February, the European Union's statistics body said Tuesday. That was in line with the rate expected by economists, according to a poll carried out by The Wall Street Journal ahead of the release.

Services inflation fell markedly to 3.4% over the month, from 3.7% in February, pointing to cooling in an area where prices had previously continued to rise rapidly.

With price rises now slowing for two months straight, investors largely expect the ECB to cut interest rates for a sixth consecutive time at this month's meeting of the governing council, which decides the central bank's policy.

Still, despite the 2% target being all but reached, the ECB might choose to stand pat on rates amid heightened uncertainty around the scale and focus of U.S. tariff increases.

There are also signs that the jobs market remains tight, with Eurostat also reporting that the eurozone's unemployment rate fell to 6.1% in February from 6.2% in January to reach a record low.

Some policymakers have been signaling that they could choose to pause on their cutting path. ECB President Christine Lagarde stressed this week that the policymakers haven't declared victory in their struggle to settle inflation at their target.

"We would like it to be definitely over, [but] it is a battle we fight every day," she told radio station France Inter. "We're almost where we want to be, but we have to stay there."

Other rate setters have similarly warned recently that the ECB should move carefully.

President Trump's administration in Washington has already introduced steep tariffs on European metals and autos and more duties are set to be unveiled Wednesday. The details around the new tariff package remain unclear, and could target specific sectors, individual economies, or both.

The ECB estimates that if the EU were to retaliate, tariffs could raise inflation in the eurozone 0.5 percentage points than otherwise would be the case.

Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby