Inflation in the euro zone tacks on more than anticipated

In May, the annual rate of inflation in the eurozone rallied more than anticipated because energy prices went up, which is likely to underpin the European Central Bank's confidence that the figure will get back to its objective in the nearer future.

However, a high level of uncertainty keeps complicating the decision-making process of European politicians. Evidently, the upswing might fade away if volatile energy prices stop soaring or in the first quarter the economic downturn appears to be longer than expected. Another great concern is political instability in Italy, which might generate a slew of public debt problems as well as a banking meltdown over which the ECB has worked hard to tame them for the last six years.

On Thursday, the European Union statistical agency told that consumer prices in 19 countries using the common currency turned out to be 1.9% higher than in May last year, quite above the 1.2% inflation level demonstrated in April, which is the highest value since April 2017. It happened to be a stronger rebound than the surge to 1.6%, anticipated by market experts.

A great part of this recovery was due to soaring energy prices that added 6.1% for the 12 months to May, jumping 2.6% since April. Without unstable components such as food and energy, the basic inflation rate edged up to 1.1% from 0.7% in April.

While the EU’s key bank is targeting an inflation rate of under 2%, the financial institution doesn’t respond to changes, mainly driven by energy costs, like most other key banks. It’s because such inflation jumps might be temporary, while policy changes occur over a number of years. Evidently, for an energy importer, such as the EU, higher prices can diminish surge rates, as they can make customers reduce purchases of other services and goods offered within the European Union.