Eurozone Inflation Rises Ahead Of ECB Meeting

(RTTNews) - Eurozone headline and core inflation accelerated in May largely driven by higher services costs ahead of the European Central Bank's governing council meeting next week, when it is widely expected to cut interest rates.

The harmonized index of consumer prices posted a faster-than-expected increase of 2.6 percent, following the 2.4 percent rise in April, flash data from Eurostat showed on Friday.

Annual inflation was seen at 2.5 percent. Inflation has moved away from the ECB's 2 percent target.

Core inflation which strips out energy, food, alcohol and tobacco, accelerated unexpectedly to 2.9 percent, while it was forecast to remain unchanged at 2.7 percent.

Among components of the HICP, services cost grew at a faster pace of 4.1 percent after a 3.7 percent rise. The increase was estimated to be the result of base effect related to the introduction of Germany's subsidized rail travel last May.

At the same time, the increase in food, alcohol and tobacco prices softened to 2.6 percent from 2.8 percent. By contrast, energy prices gained 0.3 percent, reversing a 0.6 percent fall.

The annual growth in non-energy industrial goods prices slowed marginally to 0.8 percent from 0.9 percent.

The HICP moved up 0.2 percent on a monthly basis in May. Final data is due on June 18.

Capital Economics' economist Jack Allen-Reynolds said the increases in headline and core inflation will not stop the ECB from cutting interest rates next week. However, another reduction in July now looks unlikely, the economist noted.

While the European Central Bank seems set to lower rates in June, the debate over how much the bank can release the brakes on the economy over the rest of the year will be heated, ING economist Bert Colijn said.

Inflation among all big-four economies except Italy accelerated in May.

Harmonized inflation in Germany rose to 2.8 percent from 2.4 percent in April and that in Spain climbed to 3.8 percent from 3.4 percent. Likewise, France's inflation posted 2.7 percent, up from 2.4 percent.

By contrast, Italy's inflation softened to 0.8 percent from 0.9 percent in April.