2023-06-01 11:23:00
The annual rate of inflation in the euro zone registered a decrease beyond expectations in May, which provides new arguments for the next interest rate hikes by the European Central Bank to be more cautious, transmit Archyde.com and Agerpres.
Wallet with moneyPhoto: GRAZVYDAS J / Panthermedia / Profimedia
According to a preliminary estimate published on Thursday by Eurostat, the annual inflation rate in the euro area fell to 6.1% in May 2023, from a level of 7% recorded in April.
The figure announced by Eurostat is below analysts’ estimates, who were counting on a stagnation of inflation at 6.3%.
Eurostat data show that core inflation, i.e. what remains after the prices of volatile goods such as energy and food are removed, also fell to 5.3% in May, from 5.6% in April, also below the estimates of analysts who were counting on an advance of 5.5%.
Core inflation is the indicator closely followed by the ECB when elaborating its monetary policy decisions.
The ECB will raise its benchmark interest rate again this month
Over the past 12 months, the ECB has increased the monetary policy rate by 375 basis points, up to 3.25%, to combat accelerated price growth. The Frankfurt institution has practically committed to a further increase of another 25 basis points at the next monetary policy meeting on June 15.
Several influential members of the ECB’s governing council, such as the central bank governors of Germany, the Netherlands and Ireland, have even put another hike on the table in July, but there is a broad consensus that the outlook for the longer term is far too dim. to make any kind of commitments.
ECB Vice President Luis de Guindos said on Thursday that while the euro’s guardians have completed most of their cycle of monetary policy tightening to bring inflation back to the medium-term objective of 2%, the cycle is not yet over.
Even if the data published on Thursday by Eurostat offer new arguments for prudence, Europe’s problem with inflation is far from being solved, given that the pace of price growth for many important categories, especially services, remains stubbornly high.
Food prices have risen at a slower pace, but many concerns remain
According to preliminary figures, services inflation slowed to 5% in May from 5.2% in April, while the pace of industrial goods price growth slowed to 5.8% from 6.2 % in April, in both cases being much too high figures even if the downward trend is a good one.
On the other hand, good news for the ECB is the slowing down of the growth rate of food prices, which registered a 12.5% advance in May, compared to 13.5% in April.
“The inflation forecast in Europe is strongly affected by two opposing trends. On the one hand, lower-than-expected energy prices, as a result of the mild winter, are likely to push down core inflation faster than expected. On the other hand, however, the recent wage agreements and the pressures that still exist on the side of service prices are likely to keep core inflation at a high level”, says ING economist Carsten Brzeski.
The pace of wage growth in the euro zone is maintained in the range of 5%-6%, double the level that would be consistent with the inflation target of the ECB.
But wages must rise after inflation has hurt real incomes for several years and the ECB hopes that once inflation slows, the pace of wage growth will follow a similar trend so that they cancel each other out.
Even if this scenario is a plausible one, the labor market in the EU bloc is exceptionally tense and companies, especially in the service sector, report problems in covering vacant jobs, which represents a risk for salary increases, and consequently inflation .
Another possible cause for concern for the ECB is that the pace of economic growth does not seem to be as resilient as expected, especially in the manufacturing sector, with several indicators showing that the slowdown in industrial production is affecting the economy as a whole , even if the service sector is experiencing a period of boom.
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