What's going on?
The data released on Friday
consumer
Prices across the eurozone rose in May, but the European Central Bank (ECB) was undoubtedly not pleased with the timing.
What does this mean?
The latest report comes just days before the ECB is expected to cut its key policy interest rate.
interest
Raising interest rates from record highs. Like most of the world's central banks, the ECB has struggled with high interest rates.
inflation
Its biggest weapon is high interest rates. And it has proven to be quite effective: Consumer prices rose just 2.6% year-on-year in May, just two percentage points higher than in March and April, and not far from the central bank's 2% target. But the ECB is now putting away that weapon. Higher interest rates are effective at keeping inflation down, but they also squeeze the economy in the process.
Why should you care?
Zoom in: The gentlest cut.
The past two years have not been easy for the eurozone.
inflation
Borrowing interest rates are high,
consumer
Businesses are reluctant to spend. The annual pace of economic growth across the European Union was just 0.4% in the most recent quarter, and the outlook for the rest of the year is not very encouraging. So the ECB's first interest rate cut since 2019 will be welcome news for the region's economies and their development.
stock
market.
Overall picture: Don't run with scissors.
The ECB may have been raising interest rates aggressively, but it is unlikely to cut them at the same pace. The central bank wants to take a slow and steady approach, as it risks rekindling an old enemy: inflation. After all, if Europe cuts interest rates and the US Federal Reserve doesn't, the euro will fall and the dollar will rise. Imports from Europe will become more expensive, and consumer prices will rise again.
Source: Bloomberg
