Eurozone inflation rises to 3.2% in May, services inflation sticky at 3.5%

Eurozone headline inflation rose to 3.2% in May, up from 3.0% in April, marking the highest reading since September 2023. The increase was driven by a 10.8% year-on-year jump in energy prices, while services inflation remained stubborn at 3.5%, up from 3.0% in April. Core inflation, which excludes volatile food and energy, also edged higher due to the services component.

The data complicates the European Central Bank's policy outlook. Sticky services inflation, often tied to wage growth and domestic demand, suggests underlying price pressures remain elevated. This may reduce the scope for rate cuts in the near term, as the ECB balances inflation concerns against a weak economic backdrop. For currency traders, the euro could see support if markets price out rate cuts, widening the rate differential with other major central banks. Traders can monitor live euro exchange rates on NowPrice's real-time dashboard to track market reactions.

Looking ahead, markets will focus on the ECB's next policy meeting and any guidance on the timing of rate adjustments. Key data releases include eurozone wage growth figures and the June flash CPI estimate, which will provide further clues on whether inflation is becoming entrenched. The energy price outlook, particularly oil and gas, will also be critical given its outsized impact on headline inflation.