European inflation lowest since start of Ukraine war

European prices rose more slowly in May, raising the possibility that the European Central Bank (ECB) will soon stop raising interest rates.

The Consumer Price Index (CPI) for the 20-country eurozone rose 6.1% last month compared to a year earlier, down from 7% in April, the European Union's statistics office said on June 1.

This was also the slowest pace of increase since February 2022, when Russia launched its military campaign in Ukraine, causing global energy prices to spike. Food price growth cooled for the second month in a row. Energy prices even fell. Core inflation (excluding food and fuel) slowed to 5.3%, a four-month low.

Inflation fell sharply in Germany, France, Italy and Spain, according to data released on May 31. In Europe's largest economies , prices across many sectors cooled.

Vegetable stall at a market in Nice (France). Photo: Reuters

This could give the European Central Bank (ECB) more reason to stop raising interest rates sooner than expected. However, ECB President Christine Lagarde said yesterday that officials "still need to bring interest rates to reasonable levels". "Inflation is still too high and could remain so for a very long time," Ms. Lagarde said at a recent banking conference in Germany.

The ECB, the US Federal Reserve and the Bank of England all target 2% inflation. "Tightening officials will argue that service sector inflation is difficult to lower and the labor market remains tight," said Franziska Palmas, a European economist at Capital Economics.

The eurozone unemployment rate fell to 6.5% in April, down from 6.6% the previous month. Palmas also said that as core inflation remains subdued, the ECB could raise interest rates two more times, bringing the lending rate to 3.75%.

Data released earlier this week showed that lending by eurozone banks slowed further in April, with the value of loans to households barely rising.

Over the past year, the ECB has raised its lending rate by 375 basis points (3.75%), from minus 0.5% last July to the current 3.25%.

Ha Thu (according to CNN)

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