Eurozone inflation rose more than expected in May, with consumer prices rising 2.6% year-on-year. Inflation had been stable at 2.4% for the past few months but was expected to rise to 2.5%.
A Reuters poll had forecast core inflation – a measure that strips out fluctuations in the data – would stabilize at 2.7 percent, compared with the official reading of 2.9 percent, slightly higher.
The data has increased concerns about when the European Central Bank (ECB) will start cutting interest rates, weakening expectations of an aggressive rate-cutting cycle.
Until the May announcement, inflation had been trending downwards towards the ECB's recommended 2% target.
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A Bloomberg survey of economists showed they had already revised down their estimates for how much the ECB will cut interest rates after the first cut, scheduled for next week, but a cut is still expected.
Respondents expect the first of six cuts to the deposit rate, currently at 4 percent, of 0.25 percentage point to be announced next week – one notch lower than respondents had expected before the Governing Council last set policy in April.
Economists expect the euro zone to move ahead of the Bank of England and the US Federal Reserve, but uncertainty reigns due to strengthening wage pressures and the direction of inflation.
The biggest risks to interest rate movements were identified as macro concerns, including the outcome of the US election and continued high inflation.
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