FRANKFURT—Euro zone prices rose more than expected last month and underlying price pressures accelerated, an unwelcome trend that is still not expected to prevent another interest rate cut to insulate the economy from the fallout of a global trade war.
Inflation in the 20 nations sharing the euro currency held at 2.2 percent, coming above expectations for 2.1 percent in a Reuters poll of economists as the price growth in services and unprocessed foods offset the dip in energy costs.
A surge in services prices pushed up underlying or core inflation, which excludes volatile food and energy prices, to 2.7 percent from 2.4 percent, above expectations for 2.5 percent suggesting that domestic price pressures are higher than thought.
While ECB policymakers normally place great emphasis on inflation prints – especially the uptick in core prices – the US administration’s trade war with the rest of the world may be far important in the run up to the bank’s June 5 policy meeting.
“The high level of uncertainty around the global and euro area growth outlook implies that the ECB may not pay much attention to the higher than expected April inflation numbers at its June meeting,” Nordea economists said in a note.
Indeed, financial investors continue to see about an 85 percent chance of a rate cut on June 5 and then at least one more move before the end of the year, which would take the ECB’s deposit rate to 1.75 percent or lower.
Still, the big rise in services prices is likely to bolster calls by policy hawks to slow the pace of policy easing before there is decisive evidence that the target is reached.
