Eurozone, inflation rises again in May. Eyes on the ECB

Brussels – Inflation is back on the rise in the eurozone: in May, it registered a 0.2 percentage point increase compared to April, to 2.6 percent. In the preliminary release, Eurostat notes that between April and May, the index was affected by the increase for services (4.1 percent compared to 3.7 percent in April) and energy (0.3 percent, up from -0.6 percent in April). Non-energy industrial goods, however, were broadly steady (0.8 percent, up from 0.9 percent in April).

At the member-state level, the European Statistical Office expects inflation to rise in three of the top four eurozone economies – Germany (from 2.4 percent to 2.8 percent), France (from 2.4 percent to 2.7 percent), and Spain (from 3.4 percent to 8.8 percent). Bucking the trend was Italy, with inflation still well below the 2 percent reference target and falling (from 0.9 percent to 0.8 percent).

These data should not change the guidelines of the European Central Bank, which announced its intention to ease the tight monetary policy and cut interest rates. The first sign of this was given by ECB President Christine Lagarde, saying that June would be the decisive time for such a decision. Then, Governing Council member Philip Lane reiterated this more explicitly in his speech at the Dublin Institute of International and European Affairs on Monday (May 27). “At our June meeting, if our updated assessment of the inflation outlook [.] were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction.” Translated, this means rate cuts, of an expected quarter of a point (-0.25).

All eyes at this point are on Frankfurt and what the Board will decide at its next meeting scheduled for next week (June 6). For the Eurotower, after fueling expectations of an interest rate cut, a reversal appears impractical at this point. Eurostat data on inflation, which show a rise, indicate the possible next course of action in monetary policy: having gone ahead with the announced cut, the central bank could decide to stay on hold in the coming months.