Eurozone Inflation Rate Falls to 6.1 Percent in May - The World News

Eurozone Inflation Rate Falls to 6.1 Percent in May

Inflation in the eurozone slid last month to the lowest level in more than a year, as an easing of price rises after last year’s run-up in energy bills gained momentum. But the price of food and services climbed at an uncomfortable pace, raising the odds that the European Central Bank will continue to lift interest rates to curb costs.

Consumer prices in countries that use the euro rose at an annual rate of 6.1 percent in May, down from 7.0 percent in April and well below double-digit increases in autumn, Europe’s statistical agency reported Thursday. Excluding volatile food and energy costs, so-called core inflation rose 5.3 percent, down from 5.6 percent the month before.

Yet while the yearlong surge in inflation has peaked, millions of households in Europe are continuing to confront a cost-of-living crisis, even as employers raise wages to help offset the pain, an issue that remains a top concern for E.C.B. officials.

“I could not say that the victory is there so far,” the bank’s vice president, Luis de Guindos, said in Frankfurt this week.

How much higher the European Central Bank will raise interest rates to deal with inflation remains to be seen. Last month, Christine Lagarde, the bank’s president, said that “we have more ground to cover” to bring inflation down to its 2 percent target, and policymakers have signaled that they will lift rates at least once more when they meet this month, probably by a quarter point.

“From there on, things get more uncertain,” analysts at ING Bank wrote in a note on Thursday.

But with core inflation still high, the central bank could raise rates twice in coming months, to 3.75 percent, according to a forecast by Nomura. “Persistently high core inflation will remain a concern for the E.C.B.,” analysts wrote in a note to clients this week.

The moderation in price gains last month reflected efforts by governments in Europe’s largest economies to lower skyrocketing energy costs over the winter through concerted efforts to make up for a decline in Russian gas supplies. Many continued a policy of shielding households from soaring energy bills. They also put pressure on food producers to cap surging prices on grocery store shelves.

Germany’s annual inflation rate fell to 6.3 percent in May, from 7.6 percent in April; in France, the rate fell to 6 percent, well below economists’ forecasts, from 6.9 percent. Spain’s inflation fell to 2.9 percent, a two-year low as the government there subsidized gas bills.

Despite government programs to protect consumers from runaway prices, costs for food, alcohol and tobacco remain high, increasing at an annual rate of 12.5 percent in May. Still, that was down from 15.5 percent in March.

In France, the eurozone’s second-largest economy, food purchases slumped 11 percent below the level during the coronavirus pandemic.

The slowdown “shows the significant impact of the inflationary context and the fall in purchasing power, which has led households to significantly alter their consumption habits,” Charlotte de Montpellier, senior economist at ING Bank, said in a note to clients.

In Germany, which began the year in a recession, stubbornly high inflation has caused consumers to scale back consumption, pushing spending down 1.2 percent in the first three months of this year.

“The reluctance of households to buy was apparent in a variety of areas,” the German statistics office said in a report last week. “Households spent less on food and beverages, clothing and footwear, and on furnishings.” They also purchased fewer electric cars, as government incentives were reduced.

And few believe that inflation is sure to continue moderating in the months ahead. France is among countries that are pulling back on generous energy subsidies as the government seeks to rein in its finances, heralding an increase in costs for consumers and businesses.

The inflationary pressures have increasingly filtered through the eurozone’s economy, especially for services, ranging from hotel managers and waiters at restaurants to truck drivers, whose costs have been zooming up as employers raise wages amid worker demands to keep up with rising monthly expenses. Services inflation rose at an annual 5 percent pace in May, a steep increase from the previous year.

The labor market in the euro area remains tight, as unemployment has fallen to the lowest rate on record, a seasonally adjusted 6.5 percent in April, Eurostat reported. Hourly labor costs in the eurozone rose at a record pace of 5.7 percent in the fourth quarter of last year, compared with a year earlier.

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