Inflation in the euro area falls in May

Inflation in the euro area falls in May

2023-06-01 11:00:00

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The price pressure in the euro area is weakening.

(Photo: AP)

Frankfurt The price pressure in the euro area eased significantly in May. Consumer prices rose by 6.1 percent compared to the same month last year. This was announced by the European statistical office Eurostat on Thursday based on an initial estimate. Experts had previously expected a value of 6.3 percent. In April, inflation was seven percent.

The much-noticed core inflation rate is now 5.3 percent after 5.6 percent in the previous month. The inflation rate adjusted for energy and food is considered a good indicator of the medium-term price trend. The statistical offices in Germany, France, Spain and Italy had previously reported a lower price increase.

However, the inflation rate is still well above the medium-term target of two percent set by the European Central Bank (ECB). At this value, the central bank sees price stability.

In order to lower inflation, the ECB has recently raised interest rates seven times in a row to 3.75 percent. Experts expect further rate hikes. However, the differences among ECB officials could now widen as the central bank approaches the end of the cycle of interest rate hikes.

The economist at the consulting firm Capital Economics, Jack Allen-Reynolds, assumes that core inflation has now also passed its peak and will now gradually decline. “But we don’t think that will stop the ECB from raising rates in June and probably July.”

The chief economist at the state credit institution for reconstruction (KfW), Fritzi Köhler-Geib, made a similar statement. In addition to statistical effects, she attributes this to the fact that “the global material shortages are easing, energy prices have fallen and retail demand is weak.” In addition, the massive interest rate hikes that have taken place would further dampen inflation in the coming quarters.

>> Also read: Manufacturers want to further increase food prices in supermarkets

On the other hand, Köhler-Geib warns that the recent higher wage settlements are likely to drive up corporate costs and inflation more in the future.

In May, the development of energy prices in particular dampened inflation. They fell 1.7 percent year-on-year after rising 2.4 percent in April. Meanwhile, food, alcohol and tobacco prices rose 12.5 percent after rising 13.5 percent in April. Services prices increased by 5.0 percent in May after 5.2 percent in April.

More: Jean-Claude Trichet sees no return to the low-inflation era

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