Eurozone CPI rises to 3%

Euro zone inflation accelerated again in May, adding to pressure on the European Central Bank ahead of its June policy meeting. Eurostat said on June 2 that annual inflation in the 20-country euro area rose to 3.2% from 3.0% in April. The reading came after Eurostat’s May 13 flash estimate showed the euro zone economy grew 0.1% in the first quarter from the previous three months. Markets and economists have been looking at the combination of firmer prices and weak growth as the ECB weighs whether to raise rates again next week. ### How much did inflation rise, and what drove it? Eurostat said the biggest move in May came from energy, with annual price growth at 15.4%, up from 10.9% in April. Services inflation also picked up to 3.7% from 3.0%, while food, alcohol and tobacco eased to 2.4% from 2.5% and non-energy industrial goods held at 0.8%. The May increase put headline inflation at its highest level since 2023, according to Bloomberg. (ec.europa.eu) The April data had already shown inflation returning to 3.0% after 2.6% in March. In that release, Eurostat said energy prices were the main driver, with the annual rate for that component jumping to 10.9% in April from 5.1% in March. ### Where does growth stand? Eurostat said on May 13 that euro area gross domestic product rose 0.1% in the first quarter from the previous quarter, while the wider European Union grew 0.2%. (ec.europa.eu) The agency also said employment in the euro area rose 0.1% over the same period. That weak growth backdrop has sat alongside rising consumer prices for weeks. Reuters reported on June 2 that the latest inflation figures reinforced the case for an ECB rate increase later this month. (ec.europa.eu) ### Why are traders focused on the June ECB meeting? The ECB’s official calendar shows its next monetary policy meeting takes place on June 10 and June 11 in Frankfurt, with a press conference scheduled after the second day. (ec.europa.eu) That leaves policymakers with one more major inflation reading before President Christine Lagarde addresses reporters. Bloomberg reported on June 2 that the inflation print cemented expectations for a rate increase at next week’s meeting. (msn.com) Reuters said the case for a small hike was already strong before the data and that May’s figures added to it. Those assessments were published after the Eurostat release and reflect how investors were reading the inflation path into the meeting. (ecb.europa.eu) ### What does this change for the ECB’s inflation outlook? The ECB said in its March staff projections that headline inflation was expected to average 2.6% in 2026, 2.0% in 2027 and 2.1% in 2028. The central bank said at the time that the 2026 forecast had been revised up from December, citing higher energy prices linked to the war in the Middle East. (bloomberg.com) The May inflation reading of 3.2% is above that annual average projection and above the ECB’s 2% target. Eurostat’s release and the ECB’s own forecast path will now frame the June 10-11 meeting in Frankfurt, where Lagarde is due to present the Governing Council’s decision. (ec.europa.eu) (ecb.europa.eu)