Eurozone inflation accelerated in May, reinforcing expectations that the ECB will raise interest rates at next week’s meeting. Headline CPI rose from 3.0% yoy to 3.2% yoy, matching market expectations, while core CPI, which excludes energy, food, alcohol and tobacco, accelerated from 2.2% yoy to 2.5% yoy, exceeding expectations of 2.4% yoy. The stronger core reading is likely to be of particular interest to policymakers given growing concerns that inflation pressures are broadening beyond energy.
The composition of the report highlights those concerns. Energy inflation remained the largest contributor, rising slightly from 10.8% yoy to 10.9% yoy. More importantly, services inflation accelerated sharply from 3.0% yoy to 3.5% yoy, suggesting higher costs are increasingly spreading through the domestic economy. By contrast, food, alcohol and tobacco inflation slowed from 2.4% yoy to 2.0% yoy, helping to offset some of the upward pressure from energy and services.
The data support the increasingly hawkish rhetoric from ECB officials in recent weeks. Policymakers including Isabel Schnabel have argued that the central bank can no longer simply look through the inflationary effects of higher energy prices if they begin feeding into broader price-setting behavior. With both headline and core inflation moving higher, the latest figures strengthen the case for a June rate hike and may keep markets alert to the possibility of further tightening if underlying price pressures remain persistent.
| Indicator | April | May | Market Expectation |
|---|---|---|---|
| Headline CPI YoY | 3.0% | 3.2% | 3.2% |
| Core CPI YoY | 2.2% | 2.5% | 2.4% |
| Energy Inflation YoY | 10.8% | 10.9% | |
| Services Inflation YoY | 3.0% | 3.5% | |
| Food, Alcohol & Tobacco YoY | 2.4% | 2.0% | |
| Non-Energy Industrial Goods YoY | 0.8% | 0.9% |
