Energy prices keep Eurozone inflation high
HIGHER energy prices kept Eurozone annual inflation well above the European Central Bank’s target in May, data showed yesterday, strengthening the case for an expected ECB interest rate rise in July.
Eurostat said consumer prices in the 17 countries using the euro were flat month-on-month in May and confirmed its earlier estimate of a 2.7 per cent year-on-year rise, down from 2.8 per cent year-on-year in April.
The ECB wants to keep inflation below but close to two per cent, and signalled it would raise interest rates again in July after a 25 basis point increase in April to 1.25 per cent, to stem inflationary pressures from energy and food.
“The dip in Eurozone consumer price inflation to 2.7 per cent in May and slight easing in core inflation will not stop the ECB from delivering the 25 basis point interest rate hike,” said Howard Archer, economist at IHS Global Insight.
Eurostat said fuels for transport added 0.48 percentage points to the final annual reading, heating oil was responsible for 0.15 and electricity and gas for 0.12 and 0.09 respectively.
Month-on-month, food was the main upward driver, but this was offset by a monthly decline in the prices of package holidays and cheaper fuel.
Excluding the volatile unprocessed food and energy costs, in core inflation, prices grew 0.1 per cent month-on-month and 1.7 per cent year-on-year, down from 1.8 per cent in April.
“The easing in core inflation seems to reflect a technical correction after the late Easter, and therefore should not be seen as a reversal of the recent upward trajectory,” said Marco Valli, economist at Unicredit.