Eurozone inflation up to 3.2% in May, fueling rate hike

Inflation across the eurozone accelerated in May, reinforcing expectations that the European Central Bank will raise interest rates at its upcoming meeting. Consumer prices in the 21-nation bloc rose 3.2% year-on-year, up from 3.0% in April, according to a preliminary estimate from the European Union's statistics agency, Eurostat. The figure remains well above the central bank's 2% target.

The increase was driven primarily by energy costs, which surged 10.9% from a year earlier. However, policymakers are increasingly focused on a sharp rise in services inflation, which accelerated to 3.5% in May from 3.0% the previous month. Underlying price pressures also strengthened, with core inflation—which excludes volatile food and energy prices—rising to 2.5% from 2.2%.

The data has cemented market expectations for a 25-basis-point interest rate increase when the ECB's Governing Council meets on June 11. Officials have signaled that elevated inflation justifies tighter borrowing conditions, with the jump in services prices seen as a particular concern because it may indicate the energy shock is spreading into the wider domestic economy.

National figures showed diverging trends among the...