Euro zone inflation eases below ECB target, supporting rate cut bets
Euro zone inflation eased below the European Central Bank’s target last month on surprisingly benign services costs, underpinning expectations for further policy easing even as global trade tensions fuel longer-term price pressures.
Consumer price inflation in the 20 countries sharing the euro slowed to 1.9% in May from 2.2% a month earlier, below expectations for 2% on a fall in energy prices and a sharp decline in services inflation.
A more closely watched reading on underlying inflation, or prices excluding volatile fuel and food prices, meanwhile slowed to 2.3% from 2.7%, driven by a slowdown in services price growth to 3.2% from 4.0%, Eurostat, the EU’s statistics agency said.
The ECB has cut interest rates seven times since last June and another move on Thursday is almost fully priced in given muted wage growth, easing energy prices, a strong euro and lukewarm economic growth, factors which all point in the direction of easing inflation.
“Given the clear disinflationary outlook, especially for services, the ECB cutting rates this Thursday seems an easy bet, and more easing should follow later in the year,” Riccardo Marcelli Fabiani at Oxford Economics said.
Price pressures are so weak that some economists even expect inflation to keep sinking below the ECB’s 2% target this year and not rebound until sometime in 2026.
“A strong drop in core inflation in May to 2.3% and headline to 1.9% serves as a clear sign that undershooting the inflation target is still a possibility for the ECB,” ING economist Bert Colijn said.
Article Source – Euro zone inflation eases below ECB target, supporting rate cut bets – RTE
