Euro zone inflation jumps past ECB target in May

Euro zone inflation surged past the European Central Bank’s elusive target in May, heightening a communications challenge for policymakers who will happily live with higher prices for now but may face a backlash from irate consumers.

Inflation in the 19 countries sharing the euro accelerated to 2% in May from 1.6% in April, driven by higher energy costs to its fastest rate since late 2018 and above the ECB’s aim of “below but close to 2%”, data from Eurostat showed on Tuesday.

The figure is also above expectations for 1.9% in a Reuters poll, likely intensifying talk that structural forces, not just transient factors, may be behind a surge.

“Everyone saw it coming, but still it is starting to make a lot of people sweat,” ING economist Bert Colijn said. “Inflation is returning rapidly at the moment at a time when news about economies is increasingly upbeat and labour markets are profiting from the reopening.”

May is unlikely to be the peak, however. Inflation could be closer to 2.5% late in the year as the recovery from a pandemic-induced double-dip recession and recent commodity price increases add to price pressures.

via Reuters