Inflation remains high ahead of interest rate meeting 

With inflation running well ahead of the European Central Bank's target of 2%, an interest rate increase looks likely next month

The Governing Council of the ECB is due to meet on June 10 and 11 to discuss whether to increase interest rates. 

The latest Harmonised Index of Consumer Prices (HICP) shows prices in Ireland are estimated to have increased by 3.5% in the 12 months to May, largely driven by the increase in energy prices owing to the conflict in the Middle East.

The HICP is a measure of inflation that allows for price increases to be compared across EU member states.

According to the latest estimates, prices increased by 3.5% in May, compared to May last year, but have declined by 0.1% compared to April this year.

Energy prices are estimated to have increased by 11.9% year-on-year, but declined by 4.3% month-on-month.

The price of a barrel of Brent crude oil — an industry benchmark — was hovering around $91 (€78.12) on Friday. Prior to the outbreak of the war with Iran, prices were hovering $70.

Food prices are estimated to have gone up by 1.4% in the last 12 months.

Excluding both energy and food prices, the HICP is estimated to have increased by 2.7% annually. Service prices have gone up by 3.7% during the same period.

Eurostat will publish flash estimates of inflation from the EU HICP for the eurozone for May on June 2.

These inflation metrics will be analysed by the European Central Bank (ECB) when it meets next month to discuss the future path of interest rates. Currently, inflation is above the ECB’s target rate of 2%, which leaves open the potential for an interest rate hike following the meeting.

During April, inflation across the Eurozone was running at 3%.

Across the four largest economies in the eurozone, inflation is well above its 2% target.

May readings for France, Italy and Spain quickened to 2.8%, 3.3% and 3.6%, data released on Friday showed. While moderating in Germany, the headline number of 2.7%, held far beyond the ECB’s comfort zone.

ECB officials from hawkish Executive Board member Isabel Schnabel to dovish chief economist Philip Lane are signalling borrowing costs must probably rise. Lithuanian central-bank head Gediminas Simkus even speculated on Friday that two hikes may be needed.

Additional reporting Bloomberg