Eurozone inflation falls to lowest level since Russia invaded Ukraine

Eurozone inflation has fallen more than economists expected to hit its lowest level since Russia’s full-scale invasion of Ukraine more than a year ago, bolstering hopes that monetary policymakers could stop raising interest rates this summer.

Annual consumer prices in the 20-country single currency bloc rose 6.1 per cent in the year to May, a decline from 7 per cent in April, according to data published by the EU statistics agency Eurostat on Thursday. That is the lowest level since February 2022 and was below the 6.3 per cent forecast by economists in a Reuters poll.

European Central Bank rate-setters are focused on core inflation, which strips out energy and food prices. This measure fell from 5.6 per cent in April to 5.3 per cent in May, which is more than economists expected but may still not be enough to convince policymakers to stop raising rates at their next meeting on June 15.

Economists said the fall in core inflation was in large part due to the impact of Germany’s introduction of a subsidised €49 monthly public transport ticket, which damped growth in transport service prices across the bloc.

The ECB has already raised its deposit rate at an unprecedented pace from minus 0.5 per cent last July to 3.25 per cent in April. Investors are betting it will lift rates by another quarter-percentage point at its next meeting in two weeks’ time and once more in July before pausing.

“While further gradual declines in the core rate seem likely, we don’t think that will stop the ECB from raising interest rates in June and probably July,” said Jack Allen-Reynolds, an economist at research group Capital Economics.

Inflation fell in 18 out of the 20 eurozone member countries — they rose only in the Netherlands and were flat in Malta. Price pressures also cooled in all product areas for the first time since they started to rise at the fastest pace for a generation more than 18 months ago. 

Energy prices fell 1.7 per cent from a year ago in May, after rising 2.4 per cent in the previous month. Services inflation dipped from 5.2 per cent to 5 per cent, while goods inflation eased from 6.2 per cent to 5.8 per cent. 

Food prices also cooled slightly, while still rising at a rapid rate. Fresh food inflation dipped from 10 per cent to 9.6 per cent, while the price of processed food, alcohol and tobacco rose 13.4 per cent — down from 14.6 per cent a month earlier.

Price pressures have stayed higher in the eurozone than in the US, where consumer price inflation fell to 4.9 per cent in April. Prices in both the eurozone and the US have cooled faster than the UK, where inflation was 8.7 per cent in April.

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