Annual inflation in the euro zone accelerated slightly in May, driven by higher prices for services and food. Euro zone consumer prices rose 2.6% in the 12 months to May, up from a 2.4% increase in April.
Headline inflation was slightly higher than economists had expected, as was core inflation, which excludes volatile food and energy prices, from 2.9% in May and 2.7% in April.
The May figures showed headline and core inflation rising for the first time this year, highlighting the difficulties European Central Bank policymakers face in the final stages of slashing inflation to its 2% target, before peaking above 10% in 2022.
The region's three largest economies – Germany, France and Spain – saw year-on-year inflation rise in May.
European Central Bank presidents are widely expected to cut rates when they meet next week to set interest rates for the 20-nation euro zone. That would make the ECB the first major central bank to do so and set it apart from the Federal Reserve, Bank of England and other central banks that have raised rates rapidly in recent years to tame soaring consumer prices.
The ECB has kept its key interest rate, known as the deposit rate, at a record 4% since September, after policymakers signaled they would like to cut it as euro zone inflation slows and economic growth remains shaky.
“Barring any surprises, the first rate cut in June is confirmed,” Bank of France Governor Francois Villeroy de Galhau said on Tuesday.
Riccardo Marcelli Fabiani of Oxford Economics said the May figures would have little impact on what appears to be a “clearly communicated” decision to cut rates at the central bank's June meeting, but any developments thereafter could give policymakers cause for alarm.
“A temporary break in deflation, particularly in the services sector, and solid wage data will likely lead the ECB to be cautious and unlikely to cut interest rates at its July meeting,” Fabiani said.
