Eurozone inflation rose to 2 per cent in May, the first time the rate has surpassed the European Central Bank’s target in more than two years, complicating policymakers’ decision next week on whether to maintain its ultra-loose monetary policy.
A 13.1 per cent rise in energy prices over the past year was the main factor driving the harmonised index of consumer prices in the 19-country single currency area slightly above expectations to its highest level since October 2018, according to Eurostat.
The ECB governing council will meet on June 10 to decide whether to adjust its monetary policy — including its recently accelerated pace of bond-buying — in response to signs that economic activity and prices are rising as Covid-19 lockdown measures are eased.
Eurozone inflation has rebounded after several months below zero last year, prompting most economists to forecast it will exceed the ECB’s target of “close to, but below, 2 per cent” this year. That is likely to prompt calls for the central bank to start reining in its monetary stimulus.
However, several ECB policymakers, including its president Christine Lagarde, have said the recent surge in inflation is only a temporary phenomenon, driven by one-off effects, and predicted it will fade next year, requiring its policy to remain highly accommodative.
Core inflation, excluding the more volatile prices of energy, food, alcohol and tobacco, rose more modestly than the headline figure, increasing from 0.7 per cent in April to 0.9 per cent in May. Prices in the region’s services sector, which have been weighed down by coronavirus-induced lockdowns, rose 1.1 per cent.