Key facts
- Eurozone preliminary May CPI rose 3.2% year-over-year, matching expectations.
- Core CPI increased to 2.5% year-over-year, exceeding the estimate of 2.4%.
- Monthly CPI increased by 0.1%, matching the estimate.
- Energy costs saw a 10.9% inflation rate.
- Services prices increased by 3.5%.
Eurozone inflation reached 3.2% year-over-year in May, matching expectations and up from 3.0% in April. The core inflation rate, excluding food and energy, accelerated to 2.5% from 2.2%, surpassing the 2.4% forecast. Services inflation rose to 3.5%, the highest since November, while energy costs increased by 10.9%. Concurrently, the Eurozone Composite PMI Output Index fell to 48.5 in May, indicating the fastest contraction in private sector activity in 18 months. This decline, driven by waning demand and a sharp increase in input costs to a 3-1/2 year high, suggests the economy may slip into contraction in the second quarter. Business confidence remains weak, and firms reported accelerating job losses. The persistent inflation, coupled with slowing economic growth, presents a challenging dilemma for the European Central Bank, which is widely expected to raise interest rates by 25 basis points on June 11.