A continued increase in energy prices saw inflation in the euro-zone hitting a new record of 8.10% in May, the preliminary data from Eurostat revealed on Tuesday.
Expectations were for an increase to 7.80%
In comparison, economists had forecast the Consumer Prices Index (CPI) to come in at 7.80%. The reading also marked a significant month-over-month increase from 7.40% in April.
A day earlier, EU leaders reiterated their commitment to banning 90% of Russian energy by the end of 2022 – a move that will likely exacerbate the inflationary pressures in the euro-zone. In her recent blog post, ECB President Christine Lagarde wrote:
Based on current outlook, we’re likely to be in position to exist negative rates by end of Q3. If euro area economy were overheating as a result of a positive demand shock, it’d make sense for policy rates to be raised sequentially above the neutral rate.
Goldman Sachs forecasts rapid rate increase
Jari Stehn – the Chief European Economist at Goldman Sachs now forecasts the European Central Bank to increase its key rate by 25 bps in each of its meeting through June 2023. In a CNBC interview, he said:
If you strip out food and energy prices, inflation is running at about 3.50%. So, the underlying inflation pressures in the euro area have certainly firmed, which is why we do think they will normalise pretty rapidly.
The ECB is scheduled for its next meeting on June 9th. The Euronext N.V. is roughly flat on Tuesday.
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