- The annual headline inflation rate in the eurozone fell to 6.1% in May from 7% in April, lower than the 6.3% expected in a Reuters poll of economists.
- Core inflation, which is closely watched by the European Central Bank, eased to 5.3% from 5.6%.
- Investors still see the European Central Bank raising interest rates twice more at its upcoming meetings as it seeks to cool inflation to its 2% target.
People at the market for their daily shopping on April 07, 2023 in Bari, Italy. Inflation has eased in Italy but price pressures remain strong.
Donato Fasano | Getty Images News | Getty Images
Eurozone inflation fell more than expected in May, with flash figures showing the bloc’s annual headline inflation rate fell to 6.1% in May from 7% in April.
This is the lowest level since February 2022. Economists polled by Reuters had expected a May reading of 6.3%.
Core inflation, excluding energy and food, also fell more than expected, to 5.3% from 5.6%.
Annual inflation in Germany and France fell more than expected in May, according to data released on Wednesday, as prices fell the previous month. Prices in the eurozone’s largest economies have now risen to their lowest levels in 12 months.
National publications also showed declining inflation in Spain and Italy. Markets moved a little bit immediately after the Eurozone announcement, with European stocks trading higher and the Euro rallying against the US Dollar and the British Pound.
In a speech in Hanover, European Central Bank President Christine Lagarde said inflation remains “very high” and “is set to stay that way for a very long time.”
The European Central Bank meets on June 15 to make its final monetary policy decision after gradually withdrawing its benchmark interest rate from -0.5% a year ago to 3.25% in May – its highest level since November 2008.
The ECB did not provide forward guidance after its meeting in May, but stressed that underlying price pressures remained strong.
“We need to continue our cycle of hikes until we are sufficiently sure that inflation is on its way back to our target in time,” Lagarde said Thursday.
“At the same time, we need to carefully assess the strength of the transmission of monetary policy to financing, economic and inflation conditions.”
Money markets have priced in two more 25 basis point hikes by the European Central Bank, one in June and the other in July or September, according to Reuters.
Bundesbank President Joachim Nagel said last week that he expected “several” additional hikes in order to control inflation.
“Many of the main drivers of inflation have turned for the better in recent months, which is starting to be reflected in the data,” Bert Collen, chief eurozone economist at Dutch bank ING, said in a note.
Cullen added that there should be a “more significant wave of inflation” over the summer, as energy inflation drops sharply due to underlying effects, but called the upside in wages a concern.
More than normal times, the data coming in will be baseline for July and September. [ECB] decisions “.