Inflation rises in the euro zone, casting more uncertainty over the upcoming ECB decision on interest rates

 

  • Eurozone inflation accelerated more than expected, adding to uncertainty over the path of the European Central Bank's interest rate cut next week.

 

  • According to data released by Eurostat on Friday, the consumer price index rose by 2.6% year-on-year in May, accelerating from 2.4% in April.

 

  • While that rise was above the median forecast of 2.5% in a Bloomberg survey of analysts, it was in line with the estimate of the Bloomberg Economics Nowcast model.

 

  • The index, which excludes volatile items such as food and energy, also beat expectations, accelerating to 2.9%.

 

  • European Central Bank officials have warned of a volatile path for inflation as the rate of price increases has eased towards the 2% target after a historic high, but they are still expected to cut deposit rates from their current record level of 4% on June 6, ahead of both the US Federal Reserve and the Bank of England.

 

  • Money markets still expect a quarter-point rate cut next week, but have trimmed expectations for additional cuts, with traders betting on two cuts this year and a 25% chance of a third.

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