Eurozone inflation accelerated to 3.2% in May, strengthening the case for the European Central Bank’s first interest-rate increase in nearly three years. The regulator is trying to contain price pressure triggered by the conflict in the Middle East.
The preliminary estimate, published on Tuesday, June 2, matched forecasts by economists polled by Reuters. Inflation stood at 3% in April, while the May reading was the highest annual rate since September 2023.
Eurozone Inflation Rises Above the ECB’s Target Again
Energy was 10.9% more expensive than in the same period a year earlier—slightly above April’s 10.8% increase.
This is the third consecutive month in which price growth across the 21-country eurozone has exceeded the ECB’s medium-term target of 2%. One factor remains the high level of oil prices.
Core inflation, which excludes volatile food and energy prices, rose by 0.3 percentage points to 2.5%. That was slightly above analysts’ expectations of 2.4% and the highest reading in more than a year.
Markets are paying particular attention to services inflation. In May, it jumped from 3% to 3.5%. This measure, which reflects domestic price pressure, has remained well above the ECB’s medium-term target of 2% for more than three years.
The euro barely moved immediately after the data were published: the currency gained 0.1% against the dollar and traded at $1.164.
In recent weeks, leading ECB officials, including chief economist Philip Lane and executive board member Isabel Schnabel, have effectively laid the groundwork for a likely rate increase this month. They warned that high oil prices are feeding broader inflation.
After the data were released, traders still priced the likelihood of an ECB quarter-point rate increase—to 2.25%—at about 95%, according to levels implied by swaps contracts.
According to Pooja Kumra, a rates strategist at TD Securities, the muted market reaction reflected the fact that traders had “already priced in” the ECB’s June rate rise.