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EMU CommentEuro area inflation drops to 1.2 percent, largely driven by core, services inflation

  1. The flash annual consumer price index y-o-y was 1.2 percent in May, core inflation 0.8 percent
  2. Unemployment falls to 7.7 percent in April
  3. Expect rates on hold, updated forecasts and TLTRO details ahead of Thursday's ECB meeting
Lower headline inflation driven by core, services inflation
The flash annual consumer price index y-o-y was 1.2 percent in May from 1.7 percent in April, whereas core inflation decreased to 0.8 percent y-o-y, down from 1.3 percent last month. A significant driver behind this month’s lower core inflation was an adjustment in services inflation after a spike last month, likely due to holiday-related effects. One a five-year basis, average core inflation is now below 1 percent, increasing pressure on the ECB ahead of the monetary policy meeting this Thursday.
Unemployment falls to 7.7 percent in April
Euro area unemployment figures for April fell further, and roughly in line with expectations, to 7.6 (7.7) percent with (without) seasonal adjustments, down from 7.7 percent the previous month, while the number of unemployed persons continued to fall for a fourth consecutive month.
Expect rates on hold, updated forecasts and TLTRO details for Thursday's ECB meeting
The ECB’s upcoming monetary policy meeting on Thursday is likely to produce new forecasts for growth and inflation under the new chief economist Philip Lane, and is also expected to release details on a planned batch of long-term bank, TLTRO, loans. In the earlier released account of the April monetary policy meeting, members expressed concern that inflation remained “uncomfortably below the Governing Council’s inflation aim”. This month’s release is likely to do little to alleviate such concerns. We, however, do not expect the ECB to announce rate cuts this time around, although there is room for adjustment in forward guidance, possibly through an extension of the timing of the first hike in key policy rates.


Disclaimer
 Erik Meyersson

Erik Meyersson

Senior Economist

Eurozone

erme03@handelsbanken.se

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