Eurozone inflation rises more than expected amid interest rate uncertainty

inflation eurozone European Central Bank (ECB) President Christine Lagarde attends a press conference following the Governing Council's monetary policy meeting at the ECB headquarters in Frankfurt, Germany, March 7, 2024. REUTERS/Kai Pfaffenbach
Core eurozone inflation was expected to be steady at 2.7%, according to a Reuters poll, but the official reading came in slightly hotter at 2.9%. (REUTERS / Reuters)

Eurozone inflation rose more than expected in May, as consumer prices were up an annual 2.6%. The print had expected to come in at 2.5% after staying stable in the last couple of months at 2.4%,

Core inflation — a measure that strips out the volatile elements of the data — was expected to be steady at 2.7%, according to a Reuters poll. The official reading came in slightly hotter at 2.9%.

The data compounds worries about when the European Central Bank (ECB) will look to start cutting rates, softening predictions for an aggressive cutting cycle.

Up to May's reading, inflation had been trending downward, towards the ECB's preferred 2% target.

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A Bloomberg survey of economists found that economists were already dialling back their expectations for how far the ECB will lower interest rates after the first scheduled cut next week, which is still expected to go ahead.

Respondents anticipate that the first of six quarter-point reductions in the deposit rate — currently at 4% — will be announced next week. That’s one step less than they predicted before the Governing Council last set policy in April.

Economists anticipate the eurozone will move before the Bank of England and the US Federal Reserve, however uncertainty reigns due to sticky wage pressures and the path of inflation.

The biggest risks to the rate path were identified as macro concerns such as the outcome of the US election and ongoing high inflation.

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