- The euro zone’s annual core inflation rate fell to 6.1% in May from 7% in April, below the 6.3% forecast in a Reuters poll of economists.
- Core inflation, closely watched by the European Central Bank, fell to 5.3% from 5.6%.
- Investors are eyeing two more interest rate hikes by the ECB at its upcoming meetings as it seeks to reduce inflation to its 2% target.
People go for daily shopping in Bari, Italy on April 07, 2023. Inflation has eased in Italy but price pressures remain strong.
Donato Fasano | Getty Images News | Good pictures
Inflation in the euro zone fell more than expected in May, flash figures showed, with the group’s annual core inflation rate falling 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 rate of 6.3%.
Core inflation, which excludes energy and food, eased to 5.3% from 5.6%, more than expected.
Annual inflation in Germany and France fell more than forecast in May, according to data released on Wednesday, as prices fell in the previous month. Inflation in the euro zone’s biggest economies is now at a 12-month low.
National prints showed easing inflation in Spain and Italy. Markets moved little after the euro zone announcement, with European shares trading higher and the euro higher against the US dollar and British pound.
In a speech in Hanover, European Central Bank President Christine Lagarde said inflation was still “very high” and “will remain so for a very long time.”
The ECB meets on June 15 to take its latest monetary policy decision after gradually pulling its benchmark rate to 3.25% in May from -0.5% a year ago – its highest level since November 2008.
The ECB did not provide forward guidance following its May meeting, but insisted that underlying price pressures remained strong.
“We should continue our hiking cycle until we have sufficient confidence that inflation is on track to return to our target in time,” Lagarde said on Thursday.
“At the same time, we need to carefully assess the strength of monetary policy transmission to financial conditions, the economy and inflation.”
According to Reuters, money markets are expecting two 25 basis point hikes by the ECB, one in June and another in July or September.
Bundesbank President Joachim Nagel said last week that he expected “many” more hikes to control inflation.
“Many of the key drivers of inflation have turned positive in recent months, which is starting to be reflected in the data,” Bert Kolijn, senior euro zone economist at Dutch bank ING, said in a note.
Kolijn added that there should be “more significant inflation” in the summer as energy inflation falls sharply due to base effects, but qualified the upward trend in wages as a concern.
“More than usual, the incoming data will be important in July and September [ECB] results,” he said.
