Annual inflation in countries using the euro accelerated slightly in May due to higher prices for services and food. Eurozone consumer prices rose 2.6% in the year to May, and rose 2.4% in April.
Headline inflation was slightly higher than economists expected. Core inflation, which excludes volatile food and energy prices, was similar, at 2.9% in May compared to 2.7% in April.
May’s data showed headline and core inflation rising for the first time this year, underscoring the difficulties faced by European Central Bank policymakers in the final stages of bringing inflation down to the 2% target. The inflation rate peaked at over 10% in 2022.
The region’s three largest economies, Germany, France and Spain, all saw their annual inflation rates accelerate in May.
A cut in interest rates is widely expected when central bank governors meet next week to set interest rates for the 20 euro-using countries. If such measures come to fruition, the ECB would be the first major central bank to cut interest rates, putting it in line with the likes of the Federal Reserve and the Bank of England, which have raised interest rates rapidly in recent years to stem soaring consumer prices. will break.
The ECB has kept its key policy rate, known as the deposit rate, at a record high of 4% since September. Inflation has slowed in the euro zone and economic growth has been patchy, with policymakers showing an appetite for lower interest rates.
“Unless there are any surprises, the first interest rate cut in June is agreed upon,” Banque de France Governor François Villeroy de Galhau said on Tuesday.
Oxford Economics’ Riccardo Marcelli Fabiani said May’s data had little impact on his view that the central bank’s decision to cut interest rates had been “clearly communicated” at the central bank’s meeting in June. He later pointed out that this could cause policymakers to feel alarmed.
“The European Central Bank is cautious and unlikely to cut rates at its July meeting, especially given the temporary break in disinflation in the services sector and solid wage data,” Fabiani said.
