Eurozone inflation rebounds to 2.6% in May and clouds the ECB’s path beyond June

May 31. () –

The inflation rate in the euro zone would have stood at 2.6% year-on-year in May, two tenths above the rise in prices observed in April, according to the preliminary estimate of the data published today by the community statistics office, Eurostat, which can reopen the debate on how much room the European Central Bank (ECB) will have to continue lowering rates beyond the expected first cut next week.

The eurozone’s annual inflation rate would thus have recorded its first rebound since December 2023 and would reach its highest level since last February.

The acceleration in the rise in prices in the euro region would reflect the 0.3% rise in the cost of energy, after falling 0.6% year-on-year in April, while fresh food rose 1.8%, six tenths more.

Likewise, non-industrial energy goods would have increased their cost by 0.8% in May, one tenth less than the previous month, but services would have become more expensive by 4.1%, compared to 3.7% in April, thus reaching its highest level since October 2023.

By discounting the impact of energy on prices, the inflation rate would have risen to 2.8%, one tenth more than in April, while by also excluding the cost of food, as well as tobacco and alcohol, the underlying rate would have increased to 2.9% from 2.7%.

The lowest annual inflation rates would correspond to Latvia (0.2%), Finland (0.5%), as well as Italy and Lithuania (0.8% both), while the largest price increases would have been observed in Belgium (4.9%), Croatia (4.3%), Portugal (3.9%) and Spain (3.7%).

Among the other large euro economies, prices would have risen by 2.8% in Germany, compared to 2.4% in April, while in France they would have increased by 2.7% year-on-year, three tenths more.

Eurostat plans to publish inflation data for the month of May with more complete information on June 18.

RATE LOWER IN JUNE.

“While the ECB looks set to lower rates next week, the debate over the extent to which the ECB can release the brakes on the economy over the rest of the year will be heated,” said Bert Colijn, senior eurozone economist at ING. Research, highlighting that the rise in inflation in May reflects an appreciable higher cost of services among large economies such as Germany, Spain and France.

“While base effects play a role, this illustrates that the last steps to get inflation back to its target are not necessarily easy,” warns the economist, for whom, although everything continues to indicate that the ECB will cut rates for the first time since 2019 next week, “the question remains how many cuts can follow.”

“May’s inflation serves as a warning that next week may not mark the beginning of a traditional cut cycle,” he adds.

For his part, Riccardo Marcelli Fabiani, senior economist at Oxford Economics, maintains that the increase in inflation in May was driven by temporary factors and does not mean that the deflationary process has stopped.

“The temporary increase in inflation will not prevent the clearly communicated June interest rate cut,” says the expert, for whom, however, the ECB will be cautious and “is unlikely to lower interest rates at the meeting.” July”, given the momentary interruption of disinflation, especially in services, and after the solid wage data.