The eurozone’s annual inflation rate eased to 2.2% in March, down from 2.3% in February, bringing it closer to the European Central Bank’s 2% target, according to EU statistics agency Eurostat on Tuesday. The decline was largely driven by a cooling in services inflation, which fell to 3.4% from 3.7% the previous month.

With inflation slowing for the second consecutive month, investors are anticipating a sixth straight ECB rate cut at the next Governing Council meeting. However, uncertainty over U.S. tariffs and their potential impact on prices may lead policymakers to hold off on further cuts.

Meanwhile, the eurozone labor market remains robust, with unemployment falling to a record-low 6.1% in February, down from 6.2% in January. The tight job market could factor into the ECB’s decision on whether to pause rate cuts despite inflation nearing its goal.

ECB President Christine Lagarde emphasized that while inflation is moving in the right direction, policymakers remain cautious. “We’re almost where we want to be, but we have to stay there,” she said.

Adding to economic uncertainty, the Trump administration is set to announce new tariffs on European goods Wednesday, following recent levies on metals and autos. The ECB estimates that potential EU retaliation could push inflation up by 0.5 percentage points, complicating the central bank’s path forward.