In an unexpected turn of events, inflation levels in the euro zone have shown a surge for the first time inside this year’s margin, causing an underlying unease about the European Central Bank’s (ECB) strategy of delayering interest rates, considering the continuance of relentless price pressures.
Year-on-year profit in May showed an increase in consumer price inflation throughout the single currency zone at 2.6%, a rise from the previous month’s 2.4%, slightly transcending forecasted levels by economists represented in a Reuters review. In an alarming signal for investors with expectations of an aggressive reduction in interest rates by the ECB this year, core inflation, stripped of the variability induced by energy and food, has shot up from 2.7% to 2.9%.
Having seen a steady decrease towards the 2% target set by ECB all year so far, the euro zone inflation allowed the policymakers to prominently indicate their prediction of trimming their benchmark deposit rate from its record 4% high by the next week. It is the general consensus that the ECB will proceed with next week’s rate cut, positioning it as the first principal central bank to slacken monetary policies since the uprise of most remarkable inflation in the past three decades, which commenced three years ago.
However, with the turn of the month marking an upswing in price pressures as well as the euro zone economy displaying a revival of growth in the first quarter, there is an anticipation among investors that the ECB may lean towards a more conservative methodology in reducing rates for the remainder of the year.
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