Falling energy prices made up much of the drop, but prices of services also lost pace.

The European Central Bank has room to cut its interest rates further if inflation eases to its 2% goal this year as it expects, ECB policymaker Joachim Nagel said on Tuesday, adding the outlook for prices was "encouraging".

The ECB lowered borrowing costs for the fourth straight time last week and hinted at even more policy easing since inflation could be back at its 2% goal by late summer, economic growth is anaemic and a trade war was a distinct possibility.

The European Central Bank could continue to reduce interest rates as eurozone inflation approaches its target, Bundesbank President Joachim Nagel said.

The European Central Bank is getting closer to a pause in interest cuts since it is no longer clear that policy remains restrictive and energy price surges raise inflation risks, ECB board member Isabel Schnabel has said.

Nobody knows where the neutral rate is. But I guess the most important message is that we see in the Governing Council that inflation will come back to our target maybe by midst of this year. And this is good news.