Eurozone Inflation Strongest Since 2023

(RTTNews) - Euro area inflation accelerated to the highest since 2023 in May as the Middle East conflict continue to push energy prices higher and the rising price pressures strengthened the chances of an interest rate hike from the European Central Bank next week.

Inflation rose to 3.2 percent in May from 3.0 percent in April, flash data from Eurostat showed Tuesday. This was the strongest rate since September 2023, when inflation was 4.4 percent.

Eurozone inflation has remained above the ECB's medium-term target of 2 percent for the third straight month.

Excluding energy, food, alcohol and tobacco, core inflation advanced to 2.5 percent from 2.2 percent in the previous month.

The ECB Governing Council is scheduled to announce the latest interest rate decision on June 11. The central bank is widely expected to raise interest rates this month as inflationary pressures surge on the back of higher energy costs.

Policymakers including ECB President Christine Lagarde have also signaled such a move in their recent comments.

ING economist Carsten Brzeski said the uptick in inflation will motivate the ECB Governing Council to decide on an 'insurance' hike. "Not that a rate hike will do a lot to affect inflation expectations, but it would be a symbolic move, stressing the ECB's determination to act," the economist said.

Despite the rising concern over the impact of surging oil prices, the ECB had left its key interest rates unchanged for the seventh straight policy session in April as rate-setters awaited more evidence of second-round effects of the rising energy prices.

Energy prices logged an annual growth of 10.9 percent in May, which was slightly faster than the 10.8 percent rise seen in April. Services inflation rose to 3.5 percent from 3.0 percent.

Non-energy industrial goods prices climbed 0.9 percent, following a 0.8 percent gain a month ago. Meanwhile, food inflation softened to 2.0 percent from 2.4 percent.

On a monthly basis, the harmonized index of consumer prices edged up 0.1 percent in May.

The latest ECB Consumer Expectations Survey showed that inflation expectations for the coming year remained unchanged at 4.0 percent. Meanwhile, 3-year ahead inflation expectations eased to 2.9 percent from 3.0 percent.