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Europe’s Inflation Rate Rises To 2.6%

Inflation across Europe has risen to 2.6% in May, according to the latest data from statistics agency Eurostat.

The May reading was slightly higher than the annualized 2.5% inflation rate that had been forecast among economists.

However, the higher-than-expected inflation reading is not expected to deter the European Central Bank (ECB) from cutting interest rates in June.

Core inflation, which in Europe excludes energy, food, alcohol, and tobacco, rose to an annualized 2.9% from 2.7% in April, due mostly to higher gas prices.

Despite the May increase, overall inflation across the European continent has fallen significantly from a peak of 10.6% in October 2022.

Inflation in Europe has now been below 3% for eight consecutive months, raising the prospect of lower interest rates.

Financial markets have fully priced in a 25-basis point interest rate cut from the ECB on June 6, which would be the first rate reduction in Europe since 2019.

The central bank, which represents the 20 countries that use the euro currency, began raising interest rates in July 2022, lifting them from negative territory to 4% currently.

Markets anticipate one additional interest rate cut from the ECB in 2024 after the move in June.

Inflation is expected to decline further across Europe in this year’s second half as governments remove the fiscal supports put in place during the Covid-19 pandemic.