Eurozone inflation accelerated more than expected in May, leading to concerns about future interest rate cuts. Despite this, economists predict that the European Central Bank (ECB) will lower its key interest rate next week. However, the outlook for interest rate cuts after that is uncertain.
The faster rise in inflation has made the prospects of autumn interest rate cuts less certain. Analysts suggest that the ECB is almost certain to implement an interest rate cut in June, as indicated by members of the monetary policy-making council. The recent inflation data has raised concerns about the credibility of the central bank if they were to cancel the interest rate cut. In May, inflation reached 2.6 percent, higher than the anticipated 2.5 percent.
Core inflation, which excludes food and energy prices, also accelerated more than expected in May, reaching 2.9 percent. Service inflation rose sharply to 4.1 percent, adding to concerns about future interest rate cuts. While the latest inflation figures have dampened expectations for three interest rate cuts this year, analysts still predict at least two cuts after June. Some financial institutions have adjusted their forecasts for interest rate cuts based on these predictions, anticipating two cuts after June.
Other analysts still expect three interest rate cuts this year, in June, September and December despite the uncertainty surrounding future interest rate cuts. Despite this uncertainty surrounding future interest rate cuts, analysts agree that the longer-term trend of inflation is a cause for concern.
Overall, the inflation data for May has prompted analysts to reassess their predictions for interest rate cuts and the economic outlook for the Eurozone. The ECB’s decision next week will be closely monitored to assess its impact on inflation and future interest rate policies.
In summary: while economists are expecting another key
