The annual headline inflation rate for the euro zone dropped to 6.1% in May, down from 7% in April, according to flash numbers, which indicate that inflation in the euro zone reduced more than predicted in the month of May.
Since February 2022, this is the lowest level that has been reached. Reuters’ survey of economists revealed that they anticipated a reading of 6.3% for the month of May.
The so-called core inflation rate, which strips out the effects of fluctuations in energy and food prices, also declined more than anticipated, from 5.6% to 5.3%.
According to statistics that were announced on Wednesday, annual inflation in Germany and France declined more than predicted in May as prices dropped on a month-over-month basis. Price inflation in the major countries of the euro region has recently slowed to levels not seen in the previous year.
Inflation was also shown to be decreasing at the national level in Spain and Italy. The initial reaction of the markets to the statement about the euro zone was somewhat muted, with European equities trading higher and the euro trading higher in comparison to both the United States dollar and the British pound.
‘Too high’
Christine Lagarde, the president of the European Central Bank, recently delivered a speech in Hanover in which she said that inflation was still “too high” and “set to remain so for too long.”
After gradually raising its benchmark rate from -0.5% a year ago to 3.25% in May — its highest level since November 2008 — the European Central Bank will have a meeting on June 15 to announce its most recent decision about monetary policy.
Following its meeting in May, the ECB did not provide any forward guidance, although it did highlight the fact that underlying price pressures continued to be significant.
“We need to continue our hiking cycle until we are sufficiently confident that inflation is on track to return to our target in a timely manner,” Lagarde said Thursday.
“At the same time, we need to carefully assess the strength of monetary policy transmission to financing conditions, the economy and inflation.”
According to Reuters, the financial markets have factored in the possibility of two further rate rises of 25 basis points from the European Central Bank (ECB), one in June and another in either July or September.
Last week, the President of the Bundesbank, Joachim Nagel, said that he anticipates “several” more rate rises in order to get inflation under control.
“A lot of key drivers of inflation have turned for the better in recent months, which is starting to be reflected in the data,” said Bert Colijn, senior euro zone economist at Dutch bank ING, in a note.
Colijn noted that there should be a “more significant spell of disinflation” throughout the summer owing to the strong reduction in energy inflation caused by base effects; however, he did qualify that the higher trend in wages is a worry.
“More so than in normal times, incoming data will be key for the July and September [ECB] decisions,” he said.
