Eurozone Inflation Rises Ahead of Expected First ECB Rate Cut Next Week

May Inflation Rate 2.6%
Up 0.2%p from April
Exceeds Market Expectations

Ahead of the European Central Bank's (ECB) first expected interest rate cut next week, the inflation rate in the Eurozone (20 countries using the euro) has rebounded.

[Image source=AFP Yonhap News]

Eurostat, the statistical office of the European Union (EU), announced on the 31st (local time) that the consumer price index in the Eurozone rose by 2.6% year-on-year in May (flash estimate).

This is an increase of 0.2 percentage points from the 2.4% consumer price inflation rate in April. It is also slightly higher than the 2.5% forecast by market experts.

The core inflation rate, which shows the underlying trend of prices, also rose from 2.7% in April to 2.9% in May.

By sector, service prices increased by 4.1%, while food, alcoholic beverages, and tobacco rose by 2.6%. The energy sector, which had been declining, rebounded from -0.6% last month to 0.3%.

Major foreign media reported that while this indicator is unlikely to prevent the ECB's rate cut expected on June 5, the pace of rate cuts in July and the following months may slow down.

While countries around the world, including the United States, are still hesitant to cut rates due to inflation uncertainties, Europe is expected to be the first to initiate a rate cut next month.

Earlier, ECB President Christine Lagarde said in an interview with Ireland's 'RTE One' broadcast on the 21st, "If the indicators we receive strengthen our confidence that we can achieve our medium-term inflation target of 2%, which is our goal, mission, and duty, it is very likely that we will take action at the monetary policy meeting scheduled for June 6."

She also said, "We are confident that we are controlling inflation," adding, "Even if the outlook for next year and 2026 does not fully meet the target, it is very close, so we are confident that we have entered the control phase."

The market expects the ECB to cut the deposit rate, which has been maintained at a record high of 4.0% since last autumn, by 0.25 percentage points next month and to cut rates by the same amount again in September and December.