Eurozone inflation exceeds expectations in May.

In May, the Eurozone’s annual headline inflation rate increased more than expected, despite a slowdown in the monthly rate. This development could influence the European Central Bank’s forthcoming interest rate decisions.

On an annual basis, the consumer price index (CPI) for the Eurozone rose by 2.6%, surpassing the 2.4% increase in April and economists’ expectations of 2.5%, according to preliminary Eurostat data. However, every month, the measure slowed to 0.2% from 0.6%.

Excluding volatile items such as food and fuel, the “core” CPI increased by 2.9% in the 12 months leading up to May, exceeding analysts’ expectations of 2.7%. Every month, core inflation eased to 0.4% from 0.7% in April.

Eurostat reported that the services industry is expected to significantly influence inflation this month, followed by contributions from food and alcohol, non-energy industrial goods, and energy.

The release of this week’s price growth figures coincides with the European Central Bank (ECB) gearing up for their upcoming policy meeting next week. Leading figures at the bank have hinted at a potential decrease in their key deposit rate from its current record highs during the meeting. This decision seems driven by indications that inflation is starting to slow down and approach the ECB’s target of 2%.

The ECB’s rate cut next week is just the first step. Analysts are concerned that inflation might not go away easily and could become a bigger issue later this year.