Bloomberg: Euro-Zone Inflation Surpasses 3% for First Time Since 2023

Euro-Area Inflation Quickens Past 3%. Source: Eurostat

Euro-area inflation topped 3% for the first time in more than 2 1/2 years, cementing expectations for an interest-rate hike when the European Central Bank meets next week, Bloomberg reports.

Consumer prices rose 3.2% from a year ago in May, up from 3% the previous month, Eurostat said Tuesday. That’s in line with the median estimate in a Bloomberg survey.

Core inflation, which excludes volatile items like food and energy, quickened more than anticipated to 2.5%, while the closely watched services gauge jumped to 3.5%.

The ECB is expected to deliver its first increase in borrowing costs since September 2023 on June 11, with officials appearing to have concluded that they can no longer wait to respond to the fallout from the Middle East conflict.

They’re worried chiefly about workers demanding steep pay rises and firms boosting selling prices, viewing such consequences as probably now inevitable as the war drags on.

Most policymakers, however, remain cautious on the path beyond June as growth in the region’s 21-nation economy also takes a hit. Business activity shrank in May at the quickest pace since 2023.

Executive Board member Isabel Schnabel, seen as the most hawkish Governing Council member, suggested Monday that it’s too early to specify how many rate increases may be needed. Lithuania’s Gediminas Simkus has said a second move after June “is more likely than not,” though it’s unclear when.

“It’s quite important to react in a timely manner to this emerging inflationary environment so we can prevent a possible acceleration of inflation and the inflationary spiral, prevent it at its very beginning with the least possible impact on the economy,” Simkus said Tuesday in Vilnius.

Separately, his Finnish counterpart Olli Rehn described inflation expectations as still anchored so far, but said action is needed this month to keep prices under control.

“While inflation risks have increased, a rate increase in June would be an insurance one, but not due to entrenched inflationary pressures,” he said in a speech.

Data last week showed inflation gathering pace in three of the bloc’s biggest member states, and remaining well above the ECB’s 2% target in all of them.

Propelled by the war-induced surge in energy costs, May readings for France, Italy and Spain quickened to 2.8%, 3.3% and 3.6%, while the headline number for Germany moderated to 2.7%.

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