Eurozone Inflation Falls to 6.1%
Eurozone annual inflation within the 20-nation single currency bloc has fallen more than expected by economists in the year to May, reaching its lowest level since February 2022....
Facts
- Eurozone annual inflation within the 20-nation single currency bloc has fallen more than expected by economists in the year to May, reaching its lowest level since February 2022.1
- The Eurozone's Harmonized Index of Consumer Price inflation eased to 6.1%, beating estimates of 6.3% and down from 7% in April.2
- The Euro has consequently seen a rise in strength against the US dollar and the British pound following the news. Annual inflation in Germany and France also dropped more than expected in May with decreases also notable in both Spain and Italy.3
- Commenting on the news, Commerzbank economist Christoph Weil told Reuters that underlying inflation had 'probably passed its peak,' leading to debate over whether the European Central Bank (ECB) should continue to raise interest rates.4
- ECB chief Christine Lagarde commented that, while inflation was still 'too high,' the statistic was approaching a 'cruising altitude.'5
- The ECB has raised interest rates by 375 points from last July, reaching 3.25% with further hikes expected. Franziska Palmas, a senior Europe economist at Capital Economics, claimed on Thursday that the ECB would likely settle for two further interest rate climbs.6
Sources: 1FT, 2FXStreet, 3CNBC, 4Reuters, 5Barrons and 6CNN.
Narratives
- Narrative A, as provided by CityAM. With better-than-expected results, the steep fall in inflation will be a big boost for the European Central Bank. A recession has not materialized, but expect more rate hikes and a tight labor market as Europe tries to get inflation to where it should be.
- Narrative B, as provided by DailyForex. While there is an evident divergence in the success of reducing inflation between the Eurozone and the UK — and the ECB now holds more options than expected when it comes to interest rates — European financial stability is still weak. The situation is still extremely fragile and sensitive to surprises, and too much confidence may lead to a macroeconomic correction in the financial markets soon.
