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.
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, it is also to be expected that the differences of opinion among the ECB representatives will increase as the central bank approaches the end of the interest rate hike cycle.
Shortly after the release of the new data, ECB President Christine Lagarde dampened hopes of a rapid change of course by the ECB in a speech at the Sparkassentag in Hanover. “There are no clear signs that core inflation has peaked,” she said. The ECB has made it clear that it still has a way to go to raise interest rates to a level that sufficiently slows the economy.
The economist at the consulting firm Capital Economics, Jack Allen-Reynolds, on the other hand, assumes that core inflation has now peaked and will gradually recede. “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 “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 will dampen inflation even further in the coming quarters.
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.
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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. Food, alcohol and tobacco prices rose 12.5 percent after a 13.5 percent increase in April. Services prices increased by 5.0 percent in May after 5.2 percent in April.
Since services are particularly labour-intensive, wage developments have a greater impact there. Commerzbank economist Christoph Weil therefore expects that rising wages there will drive prices up more in the near future. Recently, wages have increased more than before.
Luis de Guindos: Rate hike course well advanced
In Germany, the largest economy in the euro area, nominal wages increased by 5.6 percent in the first quarter compared to the previous year. ECB officials like Vice President Luis de Guindos have repeatedly warned that rising wages and growing corporate profit margins are increasing the risk of inflation. This could lead to the central bank having to raise interest rates even more than usual.
According to de Guindos, however, the ECB is already well advanced on its rate hike course. “A large part of the journey is done, but there is still the last piece,” he told Spanish radio station RNE on Thursday.
The futures markets are currently pricing in about two further rate hikes in June and July. However, there are also voices from the Governing Council that bring further hikes into play.
Bundesbank President Joachim Nagel did not want to rule out an increase in the guidelines in September. He emphasizes that inflation is still very stubborn. The head of the Austrian central bank, Robert Holzmann, also indirectly advocated further increases beyond the summer.
The head of the Estonian central bank, Madis Müller, recently spoke of at least two further increases. In a European comparison, inflation is particularly high in Estonia (11.2 percent) and in the other Baltic states of Latvia (12.3 percent) and Lithuania (10.7 percent). There, the consequences of the Russian war of aggression against Ukraine are having a particularly strong impact on energy and food prices. Slovakia is now also among the top group with a rate of 12.3 percent.
In contrast, the values are comparatively low in Belgium (2.7 percent), Spain (2.9 percent) and Luxembourg (2.0 percent). The way the values are calculated at the European level differs somewhat from the preferred measure of inflation used by the Federal Statistical Office in Germany, because the composition of the shopping baskets is somewhat different.
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