A general view of central Corfu with a small restaurant in the old town of Corfu, Greece, in May 2024.
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Eurostat inflation rose to 2.6% in May, statistics agency Eurostat said on Friday, but a higher-than-expected reading did not affect market bets on an interest rate cut from the European Central Bank next week.
Economists polled by Reuters had expected an increase of 0.1 percentage point from the headline figure in April of 2.4%.
Core inflation, excluding the volatile effects of energy, food, alcohol and tobacco, rose to 2.9% from 2.7% in April. A Reuters poll of economists expected a flat reading.
The data comes as the European Central Bank is widely expected to cut interest rates at its meeting on June 6, its first cut since 2019. The central bank of the 20-nation euro zone began its last cycle of rate hikes in July 2022, taking out interest rates. From negative territory to 4% at present.
Any deviation from a 25 basis point cut at the ECB's June meeting would be a major shock to markets, after weeks of strong signals from policymakers.
Following the reading, financial markets continued to price in the full June cut, followed by just one cut in 2024.
While headline inflation rose in May, rate fluctuations are expected over the coming months due to base effects from the energy market and the unwinding of government fiscal support plans across the bloc.
Overall, the headline figure has slowed significantly from its peak of 10.6% in October 2022, remaining below 3% for the past eight months in a row.
However, ECB members may pay closer attention to the services inflation rate – a key indicator of domestic inflationary pressures – which rose to 4.1% from 3.7%.
Experts are also due to release the latest round of inflation and growth forecasts at next week's meeting, providing further clues about the pace and level of cuts likely this year.
Klaas Knott, a voting member of the European Central Bank, said earlier this week that the next phase of disinflation would be “more volatile,” and that monetary policy would need to be eased slowly and gradually to avoid changing inflation expectations from expectations.
Kamil Kovar, chief economist at Moody's Analytics, said in a note on Friday that inflation was likely “the last small bump in the fight against inflation rather than the beginning of any uphill final mile.”
He added: “Hopes for a July rate cut are still buried very deep now, and just based on recent weeks’ data, the ECB will not cut rates in June either. If rates are cut in June, it will be because momentum is building.” to reduce over the past nine months.”
the euro It rose slightly against the US dollar and the British pound at 11:30 a.m. in London, holding on to gains made earlier in the session.
