Inflation in the euro zone fell to its lowest level in more than a year last month as inflation eased after last year’s energy price hikes. gained momentum. But food and service prices are rising at an uncomfortable pace, raising the possibility that the European Central Bank will continue to raise interest rates to contain costs.
Consumer prices in euro-using countries rose 6.1% annually in May, down from 7.0% in April, well below double-digit gains in the autumn, Eurostat said on Thursday. reported to So-called core inflation, which excludes volatile food and energy costs, rose 5.3%, down from 5.6% the previous month.
But despite the year-long rise in inflation peaking, millions of European households continue to face a cost-of-living crisis, even as employers raise wages to offset the pain. The issue remains a top concern for ECB officials.
“We can’t say we’ve had a win so far,” said the bank’s deputy president, Luis de Guindos, in Frankfurt earlier this week.
Analysts at Nomura Bank said they expected policymakers to raise rates two more times in the coming months, bringing the euro zone’s key rate to 3.75%. “Staying high core inflation remains a concern for the ECB,” the ECB said in a note to clients earlier this week.
Last month’s modest price increases undercut efforts by the governments of Europe’s biggest economies to bring down skyrocketing energy costs over the winter through concerted efforts to offset falling Russian gas supplies. It reflects. Many continued with policies that protected their families from rising utility bills. It also puts pressure on food producers to curb price spikes on grocery store shelves.
Germany’s annual inflation rate fell to 6.3% in May from 7.6% in April. In France, interest rates fell to 6% from 6.9%, well below economists’ expectations. Spain’s inflation rate fell to 2.9%, the lowest in two years, as the Spanish government subsidized gas prices.
Despite government programs to protect consumers from price runaways, food costs remain high, rising at a double-digit annual pace in May. In France, the eurozone’s second-largest economy, food purchases are 11% below levels during the coronavirus pandemic.
Charlotte de Montpellier, senior economist at ING Bank, said in a note to clients that the slowdown “shows the significant impact of inflationary conditions and declining purchasing power on households’ consumption habits.” .
France is one of several countries that has withdrawn generous energy subsidies, foretelling higher costs for consumers and businesses as governments try to curb their finances.
Inflationary pressures are increasingly permeating the eurozone economy, with employers raising wages to meet rising monthly expenses, especially in the service sector, from hotel managers and restaurant waiters to truck drivers. Meanwhile, labor costs are skyrocketing. Service inflation rose at an annual pace of 5% in May, significantly higher than the previous year.
The eurozone labor market remains tight as the unemployment rate fell to a record low, reaching a seasonally adjusted 6.5% in April, Eurostat reported. Hourly labor costs in the Eurozone rose at a record pace of 5.7% year-on-year in the fourth quarter of last year.
