Euro zone May inflation slows

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Euro zone May inflation slows

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Inflation in the euro zone did not increase as much as expected in May.

The first estimate of consumer prices by European Union’s statistics office Eurostat was 2.7 percent year-on-year in May, down from 2.8 percent in April.

That is still well above the European Central Bank’s target level. The dip is likely to be temporary and will not stop the ECB from raising interest rates in July.

The bank wants to limit price growth to just below 2.0 percent over the medium term.

“I think they are still on target to increase interest rates by a further quarter point this summer, probably in July. Then I think we’ll get one more this year bringing the refi rate to 1.75 percent,” said Martin van Vliet, economist at ING.

The ECB raised interest rates in April by 25 basis points to 1.25 percent to try to stem inflationary pressures in the euro zone following a sharp rise in commodity prices.

There is no breakdown or monthly data with the Eurostat inflation estimate, but economists said that once more details were published in mid-June, they were likely to show that energy prices fell sharply as a result of a drop in oil prices.

Food prices were likely to be on the rise again but core inflation, which excludes the volatile costs of energy and unprocessed food, was likely to have eased.