General view of the center of Corfu with a small restaurant in the old town of Corfu, Greece, in May 2024.
Sopa pictures | Light rocket | Getty Images
Inflation in the euro zone rose to 2.6% in May, statistics agency Eurostat said on Friday, but higher-than-expected pressures failed to influence market bets for a rate cut by the European Central Bank next week.
Economists polled by Reuters had forecast a rise of 0.1 percentage point from April’s headline figure of 2.4%.
Core inflation, excluding the volatile impact of energy, food, alcohol and tobacco, rose to 2.9% from 2.7% in April. A Reuters poll of economists had forecast an unchanged figure.
According to the data, the ECB is widely expected to cut interest rates at its meeting on June 6, the first cut since 2019. The central bank of the 20-nation euro area began its latest rate hike cycle in July 2022, lifting rates out of negative territory Area out Currently 4%.
Any deviation from the 25 basis point rate cut at the ECB’s June meeting would be a major shock to markets after weeks of strong signals from policymakers.
Following the reading, money markets continued to fully price in a cut in June, followed by just one more cut in 2024.
While headline inflation rose in May, fluctuations in the rate were forecast in the coming months due to base effects in the energy market and the withdrawal of government fiscal support programs across the bloc.
Overall, the overall figure has cooled significantly from a peak of 10.6% in October 2022 and has remained below 3% for the past eight consecutive months.
However, ECB members may pay more attention to the service sector inflation rate – a key indicator of domestic inflation pressures – which rose to 4.1% from 3.7%.
Staff will also release their latest inflation and growth forecasts at next week’s meeting, providing further guidance on the pace and size of possible cuts this year.
Klaas Knot, a voting member of the ECB, said earlier this week that the next phase of inflation control would be “more volatile” and that monetary policy would need to be eased slowly and gradually to prevent inflation expectations from diverging from forecasts.
Kamil Kovar, senior economist at Moody’s Analytics, said in a note Friday that inflation is likely “the last little bump in the road to fighting inflation, rather than the start of an arduous last mile.”
He added: “Nevertheless, hopes of a rate cut in July are buried very deep and based on the last few weeks of data alone, the ECB would not cut rates in June either. If rates are cut in June, it would be due to increasing momentum for a cut over the past nine months.”
The Euro was slightly higher against the U.S. dollar and British pound at 11:30 a.m. in London, holding on to gains from earlier in the session.
Source link
2024-05-31 10:46:56
www.cnbc.com
