General view of the center of Corfu with a small restaurant in the old town of Corfu, Greece, in May 2024.
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Eurozone inflation reached 2.6% in May, statistics agency Eurostat said on Friday, but a higher-than-expected figure did not sway market bets on lower interest rates from the European Central Bank next week.
Economists polled by Reuters had forecast a rise of 0.1 percentage points from April’s headline figure of 2.4 percent.
Core inflation, excluding the volatile effects of energy, food, alcohol and tobacco, increased to 2.9% from 2.7% in April. A Reuters poll of economists predicted a stable result.
The data comes amid widespread expectations that the ECB will cut interest rates at its June 6 meeting, the first reduction since 2019. The central bank of the 20-nation euro zone, began its last increase cycle in July 2022, pulling rates out of negative territory and bringing them back to 4% currently.
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 this reading, money markets continued to fully price in a cut in June, followed by just one more cut in 2024.
Although headline inflation rose in May, fluctuations in the rate are expected over the coming months due to energy market base effects and the end of government fiscal support programs across the bloc. .
Overall, the overall figure has cooled significantly from the peak of 10.6% reached in October 2022, to settle below 3% for the last eight consecutive months.
However, ECB members could pay closer attention to the services inflation rate – a key indicator of domestic inflationary pressures – which rose from 3.7% to 4.1%.
The staff is also expected to release its latest inflation and growth projections at next week’s meeting, providing more clues about the pace and level of potential cuts this year.
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