Inflation across the eurozone’s four largest economies remained above the European Central Bank’s 2% target for a third consecutive month in May, reinforcing expectations that policymakers may need to raise interest rates again next month.
According to preliminary data reported by Reuters, price pressures persisted in France, Germany, Italy and Spain as higher fuel costs stemming from the Iran conflict started feeding into broader segments of the economy. The latest readings are likely to strengthen the case for tighter monetary policy while raising concerns that inflationary pressures could become more entrenched across the currency bloc.
The impact of elevated energy prices was particularly visible in Italy and Spain, where transport and entertainment costs recorded notable increases. Core inflation measures, which exclude more volatile components, also edged higher in both countries. Italy’s underlying inflation rate rose to 1.8% from 1.6%, while Spain’s increased to 2.9% from 2.8%.
France experienced a sharp rise in fresh food prices, alongside a modest acceleration in services inflation, adding to signs that price pressures are spreading beyond the energy sector.
Economists expect inflation in the eurozone to continue climbing over the coming months, although the trajectory will depend significantly on developments in the Middle East. While hopes of a peace agreement between the United States and Iran have pushed oil prices lower since late April, crude remains considerably more expensive than before the conflict began.
Headline inflation trends varied across the region. France and Italy reported faster annual price growth in May, while Spain’s inflation rate remained unchanged. Germany, meanwhile, saw inflation ease after the government introduced temporary fuel discounts as part of measures designed to cushion households from rising energy costs.
Despite the recent increase in inflation, some economists believe the current episode is likely to be less severe than previous inflation shocks. Analysts noted that the latest data point to a relatively moderate inflation wave rather than the start of an extended surge in prices.
Eurozone-wide inflation figures due next week are expected to show headline inflation accelerating to 3.3% in May. Core inflation, which excludes energy, food, alcohol and tobacco, is forecast to rise to 2.4%.
Analysts at major financial institutions told Reuters that the national data released so far indicate a further increase in overall inflation and a modest pickup in underlying price pressures across the currency bloc.
At the same time, France continued to experience falling manufacturing prices, supporting the view that the current inflation shock is likely to be less intense than the one that followed the COVID-19 pandemic and the energy crisis triggered by Russia’s invasion of Ukraine in 2022.
The inflation outlook remains closely tied to energy markets and geopolitical developments, leaving the European Central Bank with a delicate balancing act as it seeks to contain price pressures without undermining economic growth.
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