Euro zone inflation hits 3.2% in May, driven by energy prices
Quick Look
- Euro zone inflation rose to an estimated 3.2% in May, exceeding the ECB's 2% target, primarily due to a 10.9% surge in energy prices.
- Services inflation also increased, while food prices cooled.
- Markets anticipate a 25 basis point rate hike by the ECB.
AI-generated summary
Why It Matters
Euro zone inflation has risen above the European Central Bank's 2% target, driven by surging energy prices in the wake of the U.S.-Iran war. Europe's reliance on energy imports makes it particularly vulnerable to price shocks. Inflation had previously dipped below the 2% threshold before the conflict.
Euro zone inflation rose to an estimated 3.2% in May, driven by surging energy prices.
The print was in line with forecasts in a Reuters poll of economists.
Energy costs represented the highest annual rate of inflation in May, according to the flash data, with prices rising by 10.9% — a slight rise from the euro zone's 10.8% energy price growth recorded the previous month.
Services inflation rose to 3.5% from 3% in April, while food, alcohol and tobacco prices cooled to 2% from 2.4% the previous month.
Inflation rates also varied drastically between individual markets. Germany, Europe's biggest economy, saw annual inflation fall to 2.7% in May from 2.9% in April. But Greece and Lithuania's annual inflation rates rose above 5% last month. In France, annual inflation rose from 2.5% in April to 2.8% in May.
Tuesday's print showed inflation in Europe is continuing to rise above the European Central Bank's 2% target as oil and gas prices remain elevated in the wake of the U.S.-Iran war.
Inflation in the euro zone jumped to 3% in April, up from 2.6% in March. Prior to the outbreak of the conflict in Iran, inflation in the euro area had dipped below the 2% threshold.
Europe is particularly vulnerable to energy shocks as a major net energy importer.
Markets are currently pricing in a 94% chance of the ECB hiking its key interest rate by 25 basis points at its meeting later this month, according to LSEG data.
What to Watch
AI outlook — possibilities, not facts
The ECB will hike its key interest rate by 25 basis points.
Very likely · Within days
Open Questions
- Will the ECB hike rates by 25 basis points as expected?
- What will be the impact of the rate hike on inflation and economic growth?
- Will energy prices continue to rise or stabilize?
- How will the U.S.-Iran conflict evolve and affect global energy markets?
