Summary
- The euro zone’s May consumer price index rose 3.2%% from a year earlier, matching economists’ expectations.
- That has reinforced expectations that the European Central Bank (ECB) will deliver its first benchmark rate increase since September 2023 at next week’s meeting.
- ECB officials have cited wage demands, companies’ higher selling prices, and a surge in energy costs as drivers of inflation, while remaining cautious on the rate outlook beyond June.
Forecast Trend Report by Period
Euro-zone inflation topped 3% in May for the first time in two and a half years, amid fallout from the war involving the US, Israel and Iran. That has all but sealed the case for a European Central Bank rate increase at next week’s policy meeting.
Eurostat said on June 2 that the euro zone’s consumer price index rose 3.2% in May from a year earlier. That compared with a 3.0% increase in April and matched economists’ median estimate.
Core inflation, which excludes volatile items such as food and energy, rose a stronger-than-expected 2.5%. Services inflation, a closely watched gauge in the euro zone, jumped to 3.5%. Preliminary data showed energy costs climbed 10.9% from a year earlier in May, the biggest monthly increase on record.
That leaves the ECB poised to raise its benchmark rate next week for the first time since September 2023.
ECB officials are chiefly concerned about workers’ wage demands and companies raising selling prices as drivers of inflation. At the same time, they see the latest outcome as increasingly unavoidable as the war involving the US, Israel and Iran drags on.
Policymakers are still cautious about the rate path beyond June as the Middle East conflict weighs on euro-zone growth. Business activity in the region contracted in May at the fastest pace since 2023.
Isabel Schnabel, one of the most hawkish members of the ECB’s Executive Board, said a day earlier that it was still too soon to say how many rate increases may be needed. Lithuania’s Gediminas Simkus said two rate hikes were likely, though the timing remained unclear.
Finland’s Olli Rehn said inflation expectations had remained stable so far, but added that action was needed this month to contain price pressures.
Driven by a surge in energy costs linked to the war, May inflation accelerated to 2.8% in France, 3.3% in Italy and 3.6% in Spain. In Germany, by contrast, inflation eased to 2.7%.
Kim Jung-a, contributing reporter, Hankyung.com, kja@hankyung.com
Korea Economic Daily
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