Euro Area Inflation May 2021

Euro Area: Inflation at over two-and-a-half--year high in May, on surging energy prices

June 18, 2021

Harmonized inflation came in at 2.0% in May, following April’s 1.6% and marking the highest print since October 2018. Inflation therefore moved above the European Central Bank’s target rate of near, but under, 2.0%. May’s result was due to sharper increases in prices for energy, non-energy industrial goods and services, while the increase in prices for services and for food, alcohol and tobacco was stable.

On a monthly basis, harmonized prices rose 0.26% in May, following April’s 0.57% increase. Core inflation, which excludes volatile energy and unprocessed foods prices, inched up to 0.9% from 0.8% in April.

Commenting on the short-term outlook for inflation, Bert Colijn, senior economist at ING, stated:

“With goods and services inflation set to increase more, elevated eurozone inflation is the best bet for the coming months. The discussion about whether this is indeed temporary or structural will be a very prominent debate for the months to come. We expect the recovery to moderate after a few strong months initially and see most goods inflation disruptions fading towards the start of 2022. That means we still expect inflation to come down to about 1.5% in 2022.”

FocusEconomics panelists see inflation averaging 1.0% in 2021, which is unchanged from last month’s estimate, before picking up to 1.3% in 2022.

Author: Massimo Bassetti, Senior Economist

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