Overview
- The euro-area inflation rate rose to 3.2% in May, Eurostat reported on Tuesday, up from 3.0% in April and the highest reading since September 2023.
- Rising oil prices tied to the Iran war have driven energy costs higher and helped push up service prices, which together are the main near-term forces behind the May increase.
- Senior ECB officials have said the shock cannot be ignored and markets are pricing about a 0.25 percentage-point interest-rate rise for the European Central Bank's June 11 meeting to rein in inflation expectations.
- Inflation levels vary sharply across the currency bloc, with Bulgaria, Lithuania and Greece well above average and Austria's early estimate at roughly 3.7% for May, driven by services and industrial goods.
- A sustained period of above-target inflation would raise borrowing costs and strain an already weak euro-area economy, so policymakers will watch oil-price moves and price expectations closely for signs the shock is becoming persistent.