Eurozone inflation jumped again in May, giving the European Central Bank a harder policy problem as the Iran war keeps energy risk alive. Reuters-syndicated coverage on June 2 said consumer prices in the 21 euro-area economies accelerated to 3.2% from 3.0%.
The data matters because markets had been looking for inflation pressure to fade. Instead, energy and services moved the wrong way, making a small ECB rate hike later this month look more plausible.
What happened
Eurostat data showed headline inflation at 3.2% in May, above the ECB's 2% target and in line with a Reuters poll. Energy costs rose 10.9%, while services inflation increased to 3.5% from 3.0%.
Why Eurozone inflation matters
The ECB faces a difficult mix: weak growth signals in parts of manufacturing, higher energy costs and sticky services inflation. That makes the central bank's next move more sensitive to every oil and wage headline.
Market impact
Higher inflation can pressure European bonds, rate-sensitive equities and consumer stocks. It can also support the euro if traders believe the ECB will be forced into tighter policy than previously expected.
Key numbers
- Eurozone headline inflation rose to 3.2% in May from 3.0% in April.
- Energy costs rose 10.9%, according to Reuters-syndicated coverage of Eurostat data.
- Underlying inflation accelerated to 2.5% from 2.2%.
- Related Fiscal Wire coverage: /article/europes-rally-faces-a-new-test-as-oil-relief-meets-war-headline-volatility
Institution angle
ECB policymakers will likely focus on core and services inflation, not just the volatile energy line. A broadening inflation problem is more difficult to dismiss as a temporary oil shock.