Euro zone inflation rises to 2.6% in May, but bloc still seen heading for interest rate cut

Inflation in the euro zone rose to 2.6% in May, statistics agency Eurostat said Friday.

Economists polled by Reuters had forecast a 0.1 percentage point increase from April’s headline figure of 2.4%.

Core inflation, excluding the volatile effects of energy, food, alcohol and tobacco, increased to 2.9% from 2.7% in April. A Reuters poll of economists had projected a flat reading.

The data print comes with the European Central Bank widely expected to cut interest rates at its June 6 meeting, the first reduction since 2019. The ECB began its latest hiking cycle in July 2022, hauling rates out of negative territory to 4% at present.

Any deviation from a 25 basis point cut at the ECB’s June meeting would be a major shock to markets, following weeks of strong signalling from policymakers.

While headline inflation increased, fluctuations in the rate have been forecast over the coming months due to base effects from the energy market and the unwinding of government fiscal support schemes across the bloc.

Overall, the headline figure has cooled significantly from a peak of 10.6% in October 2022, languishing below 3% for the past eight straight months.

This is a breaking news story and will be updated shortly.