Inflation in the Eurozone continued to rise in May, with the Harmonized Index of Consumer Prices (HICP) increasing by 2.6% year-on-year (YoY), according to data from Eurostat. This figure was higher than both market expectations and the previous month's reading of 2.4%. Core inflation, which excludes volatile components like food, alcohol, and tobacco, also saw an increase to 2.9% YoY in May.
Three of the Eurozone's largest economies – Germany, France, and Spain – all experienced a rise in annual inflation rates during this period. The European Central Bank (ECB) is widely anticipated to make an interest rate cut at their upcoming meeting on June 6, marking the first reduction since 2019.
Services inflation was the highest annual rate reported in May, coming in at 4.1%. Food inflation, alcohol, and tobacco also saw a rise of 2.6% YoY during this period.
The ECB's governing council is expected to lower interest rates due to the cooling down of overall inflation and patchy economic growth within the Eurozone. The central bank has kept its main rate at 4% since September, but policymakers have signaled their readiness to cut rates in response.
Despite these developments, some economists remain cautious about the potential for further cuts beyond June. Riccardo Marcelli Fabiani of Oxford Economics noted that the May inflation data might not significantly influence the ECB's decision-making process and that policymakers may be hesitant to lower rates again in July due to concerns over disinflation and strong wage data.
The Eurozone's inflation rate peaked above 10.6% in October 2022, but it has since cooled down significantly, remaining below the ECB's target of 2% for the past eight months.
In summary, May saw a slight increase in overall and core inflation rates within the Eurozone. The European Central Bank is expected to make an interest rate cut at their upcoming meeting on June 6. Services inflation was reported as the highest annual rate during this period, while food, alcohol, and tobacco also experienced a rise.
