Big Euro-Zone Economies Are Enduring Unfolding Inflation Shock

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(Bloomberg) — Inflation in the euro zone’s four biggest economies probably either jumped in May or held to an already robust pace, fueling the case for an interest-rate hike.

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Data released next week will show notably faster consumer-price growth stoked by energy in France and Italy, and headline gauges in Germany and Spain holding at levels last seen in 2024, according to surveys of economists compiled by Bloomberg. 

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Those numbers will be published on May 29, alongside reports from Ireland, Portugal and Slovenia. Together with Belgium’s data the previous day, they will account for inflation in more than 80% of the euro zone’s economy. 

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They will all feed into an overall gauge for the region that is scheduled for release on June 2, in the final measurement of consumer prices available to the European Central Bank before its decision the next week.

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The reports follow a wholesale reassessment in bond markets in recent days at the prospect of a more enduring price shock inflicted on the world by the closure of the Strait of Hormuz. Yields across the Group of Seven rose to levels not seen in decades. 

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That backdrop is contributing to momentum toward a euro-zone rate increase in June. On Friday, European Union Economy Commissioner Valdis Dombrovskis said that “it’s clear the ECB will have to respond,” and policymaker Alexander Demarco described the prospects of a hike then as “likely.”

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Such a move would be the first increase in the euro zone since September 2023, marking a change of direction after eight cuts that brought the deposit rate to 2%.

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“The ECB could deliver a hike in June as a risk-management move,” said Simona Delle Chiaie, chief euro-area economist at Bloomberg Economics, said in a report. “However, a weakening economy and an easing labor market strengthen the case that second-round effects on inflation could ultimately remain limited.”

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The May 29 data will kick off with France, where the median prediction of economists is for a jump to 2.9% from 2.5% in April. 

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Spain is next, with forecasts anticipating an outcome of 3.5%, matching the previous month. Analyst then foresee Italy’s report to show a surge to 3.3%.

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Germany, Europe’s biggest economy, will be last. There the inflation outcome is predicted to hold at 2.9%. 

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All of those results would continue to represent significant deviations from the ECB’s 2% goal, and together could well fuel a further acceleration in the regional gauge of consumer prices. It was last measured at 3% in April. 

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