People at the market for their daily shopping on April 07, 2023 in Bari, Italy. Inflation has eased in Italy but price pressures remain strong.
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Inflation in the euro zone eased more than expected in May, with flash figures showing the bloc’s annual headline inflation rate fell to 6.1% in May from 7% in April.
This is the lowest level since February 2022. Economists polled by Reuters had expected a May reading of 6.3%.
Core inflation, excluding energy and food, also fell more than expected, to 5.3% from 5.6%.
Annual inflation in Germany and France dropped more than forecast in May, according to data released on Wednesday, as prices dipped on the previous month. Price rises in the euro area’s largest economies are now at 12-month lows.
National prints also showed inflation easing in Spain and Italy. Markets were little moved immediately after the euro zone announcement, with European stocks trading higher and the euro higher against the U.S. dollar and British pound.
‘Too high’
In a speech in Hanover, European Central Bank President Christine Lagarde said inflation was still “too high” and “set to remain so for too long.”
The ECB meets on June 15 to make its latest monetary policy decision after gradually hauling its benchmark rate from -0.5% a year ago to 3.25% in May — its highest level since November 2008.
The ECB did not give forward guidance following its May meeting, but stressed that underlying price pressures remained strong.
“We need to continue our hiking cycle until we are sufficiently confident that inflation is on track to return to our target in a timely manner,” Lagarde said Thursday.
“At the same time, we need to carefully assess the strength of monetary policy transmission to financing conditions, the economy and inflation.”
Money markets have priced in two more 25 basis point hikes by the ECB, one in June and another in July or September, according to Reuters.
Bundesbank President Joachim Nagel said last week that he expects “several” more hikes in order to control inflation.
“A lot of key drivers of inflation have turned for the better in recent months, which is starting to be reflected in the data,” said Bert Colijn, senior euro zone economist at Dutch bank ING, in a note.
Colijn added that there should be a “more significant spell of disinflation” over the summer, as energy inflation drops sharply due to base effects, but qualified the upward trend in wages as a concern.
“More so than in normal times, incoming data will be key for the July and September [ECB] decisions,” he said.
