Consumer price growth in the euro area rebounded this month, raising questions about how the European Central Bank will move forward with its plans to loosen monetary policy.
After last month’s sideways shift in inflation, benchmark consumer price growth in the euro area rose to an annual rate of 2.6%, according to preliminary data from the EU statistics office Eurostat, putting this month’s reading over the market forecast of 2.5% and the 2.4% reported in April. The monthly rate dropped to 0.2%, which matched forecasts and was well below the previous mark of 0.6%.
Eurostat said core inflation grew to to 2.9% y/y from 2.7%, which was also the market expectation. It noted that prices for services were up 4.1% on the year.
The ECB's self-stated inflation target is 2% over the medium term.
Following the news, Eurozone money markets were forecasting less than 55 basis points in interest rate cuts from the ECB this year, down from 57bp before the announcement.
Most monetary policy mavens conceded that the ECB’s reductions will go ahead next week despite the surprisingly strong increases in the most important annual inflation measures. However, the situation after the likely June cut looks much different, according to Angel Talavera, chief European economist at Oxford Economics. “That's the July cut effectively dead if there was any doubt,” he tweeted.
Bert Colijn from ING also wondered about the next steps of policymakers should the bank announce its widely-expected cuts on 6 June. “While the ECB seems set to lower rates next week, the question of how much the ECB can release the brakes on the economy over the rest of the year will be heated,” he wrote on X.
The May rise in Eurozone price growth seemed a given following reports from the four largest economies in the currency area. On Wednesday, Germany, Europe’s most powerful economy, posted a preliminary EU-harmonised inflation rate of 2.8% for May, which was well above last month’s 2.4% and in-line with projections.
France, the second-largest euro area economy, announced Friday morning that its EU-harmonised rate jumped to 2.7% versus the previous 2.4% and the 2.5% estimate. Italy, the third-biggest economy, bucked the trend with a decline to 0.8% – a tenth higher than expected – from 0.9% in April. Inflation data from in Spain released Thursday showed an increase to 3.8%, which exceeded the forecast of 3.7% and was well ahead of the 3.4% last month.
- Annual headline, core rates higher than expected
- Analysts say next week’s ECB rate cut still a go
- Stronger price growth could squelch bank’s doves
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
31 May 2024 | 10:10 GMT
Consumer price growth in the euro area rebounded this month, raising questions about how the European Central Bank will move forward with its plans to loosen monetary policy.
After last month’s sideways shift in inflation, benchmark consumer price growth in the euro area rose to an annual rate of 2.6%, according to preliminary data from the EU statistics office Eurostat, putting this month’s reading over the market forecast of 2.5% and the 2.4% reported in April. The monthly rate dropped to 0.2%, which matched forecasts and was well below the previous mark of 0.6%.
Eurostat said core inflation grew to to 2.9% y/y from 2.7%, which was also the market expectation. It noted that prices for services were up 4.1% on the year.
The ECB's self-stated inflation target is 2% over the medium term.
Following the news, Eurozone money markets were forecasting less than 55 basis points in interest rate cuts from the ECB this year, down from 57bp before the announcement.
Most monetary policy mavens conceded that the ECB’s reductions will go ahead next week despite the surprisingly strong increases in the most important annual inflation measures. However, the situation after the likely June cut looks much different, according to Angel Talavera, chief European economist at Oxford Economics. “That's the July cut effectively dead if there was any doubt,” he tweeted.
Bert Colijn from ING also wondered about the next steps of policymakers should the bank announce its widely-expected cuts on 6 June. “While the ECB seems set to lower rates next week, the question of how much the ECB can release the brakes on the economy over the rest of the year will be heated,” he wrote on X.
The May rise in Eurozone price growth seemed a given following reports from the four largest economies in the currency area. On Wednesday, Germany, Europe’s most powerful economy, posted a preliminary EU-harmonised inflation rate of 2.8% for May, which was well above last month’s 2.4% and in-line with projections.
France, the second-largest euro area economy, announced Friday morning that its EU-harmonised rate jumped to 2.7% versus the previous 2.4% and the 2.5% estimate. Italy, the third-biggest economy, bucked the trend with a decline to 0.8% – a tenth higher than expected – from 0.9% in April. Inflation data from in Spain released Thursday showed an increase to 3.8%, which exceeded the forecast of 3.7% and was well ahead of the 3.4% last month.