Eurozone inflation slows below 2%, backing more ECB cuts
[BRUSSELS] Eurozone inflation eased more than expected, dipping below the European Central Bank's 2 per cent target and supporting the case for interest rates to be lowered further.
Consumer prices rose 1.9 per cent from a year ago in May, down from 2.2 per cent in April and below the 2 per cent median estimate in a Bloomberg survey of economists, data on Tuesday (Jun 3) showed. A core gauge excluding volatile items like food and energy moderated to 2.3 per cent, while pressures in the closely watched services sector cooled markedly.
It's the first time in eight months and only the second since mid-2021 that headline inflation has not exceeded the target. Following Russia's invasion of Ukraine and the subsequent energy crisis, it reached a record 10.6 per cent in October 2022.
The numbers arrive on the eve of the ECB's two-day rate meeting. With inflation in check and trade tensions between US President Donald Trump and Europe clouding the economic outlook, another quarter-point cut in the deposit rate, to two per cent, is almost fully priced.
'Despite the favourable optics, much of the decline might simply reflect a reversal of temporary pressures April, when the timing of Easter drove up tourism-related costs,' said Simona Delle Chiaie, senior economist for Bloomberg Economics. 'Still, several factors – including the lingering effects of US tariffs – suggest further price moderation lies ahead. We expect the ECB to cut rates this week, with a follow-up move likely in September.'
That could be the last easy decision for the Governing Council, however, as policymakers dispute where prices will head next – not just due to tariffs, but also the upcoming jump in European defence and infrastructure outlays. Investors reckon there'll be one more cut this year beyond June.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
In the short term, much hinges on trade. Most goods from the European Union are currently subject to a 10 per cent US levy, but that could jump to 50 per cent next month. Brussels has warned it may speed up retaliatory measures if Trump follows through on his tariff threats – the latest of which includes a 50 per cent levy on steel and aluminium imports.
The topic will certainly be on the agenda when German Chancellor Friedrich Merz meets Trump in Washington on Thursday. Due to the uncertainty over how the trade situation will evolve, the ECB will provide scenarios alongside its quarterly projections that day.
In March, it saw inflation slowing to 1.9 per cent in 2026 and 2 per cent and 2027, from 2.3 per cent this year. The euro's surprise advance and softer energy costs have since reinforced the retreat.
Some policymakers have suggested there'll be a downward revision to the projection – feeding a debate over the risk of undershooting two per cent. Lithuania's Gediminas Simkus said last week that there's a growing danger of inflation falling short of that goal.
Recent data on workers' pay have added to such concerns. The ECB's wage tracker signals a sharp slowdown in 2025 to levels below what's deemed compatible with 2 per cent inflation. That is despite unemployment holding at a record-low 6.2 per cent in April.
At the same time, consumers' expectations for price growth over the next year have ticked up to 3.1 per cent – the highest since February 2024. BLOOMBERG
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
AsiaOne
an hour ago
- AsiaOne
China issues bounty for hackers it says are linked to Taiwan
BEIJING — The public security bureau in the Chinese city of Guangzhou has put up an undisclosed bounty for more than 20 people it suspects carried out cyber attacks in China, the official news agency Xinhua said on Thursday (June 5), stepping up accusations against Taipei. The authorities said the hackers were linked to the Taiwan government and named one of them as Ning Enwei. There was no information on the size of the bounty in Chinese state media. Chinese authorities accused Taiwan of organising, planning and premeditating attacks on key sectors such as military, aerospace, government departments, energy and transportation, maritime affairs, science and technology research firms in China as well as in special administration regions Hong Kong and Macau, Xinhua said. Xinhua, citing a cybersecurity report, said the Taiwan "information, communication and digital army" has co-operated with US anti-Chinese forces to conduct public opinion and cognitive warfare against China, secretly instigate revolution and attempt to disrupt public order in China. Taiwan's government did not immediately respond to a request for comment. A senior Taiwan security official told Reuters that the Chinese allegations were invented, saying Beijing was trying to shift the focus from Czech and European scrutiny over alleged Chinese hacking activities there. "They fabricated a false narrative to shift the focus. It's a very typical behaviour by the Chinese Communist Party," the official said, speaking on condition of anonymity given the sensitivity of the matter. "No amount of storytelling can change the fact that Beijing is not only a regional trouble maker, but also a common international threat to the online world." China also said Taiwan had longstanding co-operation with the US National Security Agency, the Central Intelligence Agency and other intelligence agencies for the United States' "Asia-Pacific Strategy", calling it Taiwan's attempt to gain independence through relying on the United States. "The US intelligence department has long provided personnel training and technical equipment support for Taiwan's 'information, communication and digital army', and many police stations have sent 'hunting' teams to Taiwan, to launch a cyber attacks on China," according to a social media post by an account linked to Chinese state television. Last week authorities in Guangzhou, the capital of the southern Guangdong province, attributed a cyberattack on an unnamed technology company to the Taiwan government, saying Taiwan's ruling Democratic Progressive Party supported the "overseas hacker organisation" responsible. The accusation prompted Taiwan to blame China for peddling false information, saying it was China who was carrying out hacking against the island. China views Taiwan as its own territory. Taiwan's democratically elected government rejects Beijing's sovereignty claims. Chinese courts and legal bodies have no jurisdiction in separately governed Taiwan, whose government has repeatedly complained about Beijing's "long armed jurisdiction" efforts. [[nid:718714]]
AsiaOne
2 hours ago
- AsiaOne
China issues bounty for hackers it says are linked to Taiwan , Asia News
BEIJING — The public security bureau in the Chinese city of Guangzhou has put up an undisclosed bounty for more than 20 people it suspects carried out cyber attacks in China, the official news agency Xinhua said on Thursday (June 5), stepping up accusations against Taipei. The authorities said the hackers were linked to the Taiwan government and named one of them as Ning Enwei. There was no information on the size of the bounty in Chinese state media. Chinese authorities accused Taiwan of organising, planning and premeditating attacks on key sectors such as military, aerospace, government departments, energy and transportation, maritime affairs, science and technology research firms in China as well as in special administration regions Hong Kong and Macau, Xinhua said. Xinhua, citing a cybersecurity report, said the Taiwan "information, communication and digital army" has co-operated with US anti-Chinese forces to conduct public opinion and cognitive warfare against China, secretly instigate revolution and attempt to disrupt public order in China. Taiwan's government did not immediately respond to a request for comment. A senior Taiwan security official told Reuters that the Chinese allegations were invented, saying Beijing was trying to shift the focus from Czech and European scrutiny over alleged Chinese hacking activities there. "They fabricated a false narrative to shift the focus. It's a very typical behaviour by the Chinese Communist Party," the official said, speaking on condition of anonymity given the sensitivity of the matter. "No amount of storytelling can change the fact that Beijing is not only a regional trouble maker, but also a common international threat to the online world." China also said Taiwan had longstanding co-operation with the US National Security Agency, the Central Intelligence Agency and other intelligence agencies for the United States' "Asia-Pacific Strategy", calling it Taiwan's attempt to gain independence through relying on the United States. "The US intelligence department has long provided personnel training and technical equipment support for Taiwan's 'information, communication and digital army', and many police stations have sent 'hunting' teams to Taiwan, to launch a cyber attacks on China," according to a social media post by an account linked to Chinese state television. Last week authorities in Guangzhou, the capital of the southern Guangdong province, attributed a cyberattack on an unnamed technology company to the Taiwan government, saying Taiwan's ruling Democratic Progressive Party supported the "overseas hacker organisation" responsible. The accusation prompted Taiwan to blame China for peddling false information, saying it was China who was carrying out hacking against the island. China views Taiwan as its own territory. Taiwan's democratically elected government rejects Beijing's sovereignty claims. Chinese courts and legal bodies have no jurisdiction in separately governed Taiwan, whose government has repeatedly complained about Beijing's "long armed jurisdiction" efforts. [[nid:718714]]
Straits Times
2 hours ago
- Straits Times
Germany's Merz to face Trump in Oval Office on inaugural trip
FILE PHOTO: German Chancellor Friedrich Merz delivers a speech at the German Association of Towns and Municipalities event in Berlin, Germany, June 3, 2025. REUTERS/Christian Mang/File Photo BERLIN/WASHINGTON - Germany's new chancellor, Friedrich Merz, will hold his first face-to-face talks with U.S. President Donald Trump on Thursday in a high stakes meeting in the Oval Office as Europe seeks to stave off looming U.S. tariffs and sustain U.S. backing for Ukraine. The 69-year-old conservative, who took the helm of Europe's largest economy last month, is scheduled to join Trump for lunch and one-on-one talks that analysts say could set the tone for U.S.-German ties for years to come. Germany's export-oriented economy stands more to lose from U.S. tariffs than others and the country is also the second largest military and financial backer of Ukraine in its defence against Russia's invasion, after the United States. The meeting comes amid a broader fraying of the transatlantic relationship. Trump's administration has, for example, intervened in domestic European politics in a break with past practise, aligning with right-wing political movements and challenging European policies on immigration and free speech. The encounter will be closely watched after some recent meetings in the Oval Office, with the leaders of Ukraine and South Africa, for example, turned tense when Trump ambushed them with false claims and accusations. Merz and his entourage have sought coaching from other leaders on how to deal with Trump to avoid conflict. The meeting comes just weeks before a critical summit of the NATO Western military alliance which is looking increasingly strained given Trump's threats not to come to the aid of U.S. allies that do not up their spending on defence. Such threats are of particular concern to Germany, which has relied on U.S. nuclear deterrence for its security since the end of World War Two. Merz has already made some bold policy moves that he can highlight to appease Trump, analysts said. He has backed Trump's demand to more than double NATO's spending target to 5% of economic output, earning unprecedented praise last weekend from U.S. Defence Secretary Pete Hegseth. Merz, who has vowed a more assertive foreign policy, also coordinated a visit by European leaders to Kyiv just days after taking office, two European diplomat sources said. "This shows that Germany is willing to accept a greater responsibility for Ukraine and the European security order – these are all things that have been wished for in the United States over years and will be welcomed," said Sudha David-Wilp of the German Marshall Fund of the United States. "Germany is well-positioned to show that it can help the United States achieve its foreign policy goals." The fact Merz was invited to stay in the Blair House guest quarters across from the White House is a positive signal, said analysts. KINDRED SPIRIT OR FOE? Merz and Trump could even find some common ground given their business backgrounds, their membership in right-of-centre political parties, their focus on fighting illegal immigration and their fondness for golf, said Steven Sokol, President and CEO of the American Council on Germany. They also both had run-ins with former German chancellor Angela Merkel - who once squeezed Merz out of top-level politics. Moreover Merz has described himself as "a convinced transatlanticist", chairing the "Atlantic Bridge", a non-profit fostering U.S.-German ties, for 10 years. "They might discover a kindred spirit," Sokol said. Still, Trump was unpredictable, while Merz was impulsive, warned analysts, and there were huge frictions in the relationship. "The challenge that he could face is ... if Trump says something is erroneous, do you correct him? Do you risk turning it into an argument?" said Jeffrey Rathke, a former U.S. diplomat and president of the American-German Institute at the Johns Hopkins University in Washington. "Or do you find a way to indicate that you see it differently, but not let it sidetrack the conversation." U.S. administration officials remain upset that Merz criticized Trump shortly before the 2024 U.S. election, a source familiar with its thinking said. And, on the eve of his own election victory, Merz criticised the "ultimately outrageous" comments flowing from Washington during the campaign, comparing them to hostile interventions from Russia. Another possible landmine could be a recent German proposal for a levy on online platforms such as Alphabet's Google, and Meta's Facebook, especially given Trump's close ties with the U.S. tech industry, he said. REUTERS Join ST's Telegram channel and get the latest breaking news delivered to you.
