Euro zone inflation rose slightly to 2.6%, but investors still expect the European Central Bank to cut interest rates next week.
The official figure for the 20 countries that use the euro, according to Eurostat, the European Union's statistics agency, compares with 2.4% growth in April. Markets had expected 2.5% growth in May.
Inflation in Europe has soared into double digits as Russia cut off most natural gas pipeline supplies after its full-scale invasion of Ukraine and supply chains for parts and raw materials stalled as the country recovered from the pandemic.
Inflation has fallen as energy prices have fallen and supply constraints have eased.
The decline in inflation has slowed in recent months as workers have pushed for a deal to raise wages.
The result is stubbornly high prices in the service sector, a broad category that includes everything from hotel rooms to health care to concert tickets, as wages become a larger part of the cost of doing business.
Services prices rose 4.1% in May, while energy prices rose just 0.3%, keeping overall food inflation at 2.6%.
Concerns about growth have become more pronounced as inflation approaches the ECB's 2% target.
The euro zone has not seen a strong rise in gross domestic product in the past four years, and rising interest rates help curb inflation by making borrowing and buying goods more expensive, but they could also stifle growth.
ECB officials said a cut in interest rates from the current record high of 4 percent is on the table when the bank's interest rate governing council meets in Frankfurt.
European Central Bank President Christine Lagarde said last week she was “really confident” that inflation was under control.
Philip Lane, a member of the six-person executive board that runs the bank's day-to-day operations from its Frankfurt headquarters, said regulators were “ready to remove the top-tier limit” on borrowing costs, the Financial Times reported.
Rehn is the official who prepares monetary policy decisions for the 26-member Governing Council, which sets the benchmark for interest rates. The other members of the Governing Council are the heads of euro zone central banks.
It is not clear how fast the central bank will cut rates at its upcoming meetings. Recent improvements in growth data, solid inflation and strong wage growth in Europe “could provide a case against a rate cut next week,” said Carsten Brzeski, global head of macro at ING Bank.
“But the ECB's own communication over the past two months has made it almost impossible not to cut rates,” Brzeski said.
That means the bank could move “very gradually” to cut interest rates after its June meeting, while keeping them at levels that will keep credit, growth and inflation in check.
