Consumer
prices
in
the
eurozone
increased
by
2.6%
year-on-year
in
May, according
to
Eurostat’s
flash
estimate,
up
from
2.4%
in
April
and
above
economists’
expectations.
It’s
the
first
month-on-month
acceleration
of
2024.
Core
inflation,
which
shows
prices
without
energy
and
food
costs,
also
accelerated
to
2.9%
over
a
year
earlier–
the
rate
was
2.7%
in
April.
In
May,
the
greatest
contributors
to
eurozone
inflation
were
services
(4.1%,
compared
with
3.7%
in
April),
followed
by
food,
alcohol
and
tobacco
(2.6%,
down
from
2.8%
in
April),
non-energy
industrial
goods
(0.8%
vs
0.9%
in
April)
and
energy
(0.3%
vs
-0.6%
in
April),
according
to
Eurostat
estimates.
Could
Higher
Inflation
Derail
ECB
Rate-Cutting
Plans?
“Higher
than
expected
inflation
in
May
will
have
some
investors
concerned,
particularly
as
the
rise
was
driven
by
services
inflation,
the
one
area
that
the
ECB
had
previously
expressed
concern
about.
Although
an
uptick
like
this
is
disconcerting,
particularly
after
sequential
downward
movements,
we
do
not
believe
there
is
any
cause
for
panic,”
said
Michael
Field,
European
Market
Strategist
at
Morningstar.
He
said
there
are
three
things
to
bear
in
mind:
-
“First,
and
most
importantly,
inflation
was
never
going
to
see
a
perfectly
straight
line
decline
to
the
ECB’s
targeted
2%
rate.
The
ECB
had
previously
forecasted
inflation
to
fall
to
2.3%
by
year
end.
At
2.6%
now,
with
seven
months
to
go
in
the
year,
there
is
plenty
of
time
for
inflation
to
fall
further. -
Inflation
rates
in
May
differ
massively
across
the
Eurozone.
In
Belgium
inflation
is
running
close
to
5%,
while
in
Italy
it’s
less
than
1%.
This
disparity
just
highlights
that
tight
labour
markets
are
country
specific,
and
not
an
endemic
trend
across
the
entire
block,
so
unlikely
to
drive
inflation
up
much
further
as
the
year
progresses. -
Core
inflation,
the
measure
the
ECB
is
most
focused
on,
rose
by
20
basis
points
in
May,
but
remains
under
3%,
almost
half
the
level
witnessed
this
time
last
year.
There
may
be
bumps
ahead,
but
we’ve
come
a
long
way,
and
the
trend
is
still
downward.”
Eurozone
bond
yields
rose
slightly
after
the
release
of
price
data.
Germany’s
10-year
yield
was
up
0.048%
at
2.7%
(source:
MarketWatch).
Italian
BTP
yield
was
at
3.49%
(source:
Borsa
Italiana).
Stock
markets
were
mixed
as
of
noon.
Pace
of
ECB
Rate
Cuts
Is
More
Uncertain
After
June
The
European
Central
Bank
(ECB)
monetary
policy
meeting
will
take
place
on
June
6,
and
the
market
expects
a
cut
to
interest
rates.
“Another
small
fall
in
inflation
in
May
would
have
been
the
icing
on
the
interest-rate
cut
cake,
but
with
more
than
90%
of
economists
polled
expecting
the
ECB
to
cut
rates
in
June,
small
upward
moves
in
inflation,
such
as
this,
are
highly
unlikely
to
prevent
this,”
said
Field.
However,
the
future
path
is
less
clear.
“There
is
major
uncertainty
over
the
pace
of
disinflation,”
UBS
economists
wrote
in
a
May
28
note.
ECB
President
Christine
Lagarde,
said
that
ECB
monetary
policy
will
remain
highly
data
dependent
and
that
she
is
not
committing
to
“a
particular
rate
path”.
UBS
economists
expect
75bps
of
cuts
this
year
and
100
bps
in
2025:
“According
to
our
central
scenario,
ECB’s
first
cut
in
June
will
be
followed
by
a
long
and
gradual
sequence
of
25bps
rate
cuts
per
quarter
(…)
bringing
the
repo
to
3.25
by
the
end
of
2024
and
to
2.25
by
the
end
of
2025.”
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