The annual rate of price growth in the 17 countries that share the euro dropped for the first time in nine months during May, although the central bank is still widely expected to tighten fiscal policy soon, according to The Wall Street Journal. On Thursday, the European Union reported that annual price inflation in the eurozone edged down to 2.7% in May from a 30-month high of 2.8% in the previous month. Consumer prices were unchanged in May from the prior month, slowing from a 0.6% monthly increase during April, and core inflation eased from 1.6% previously to 1.5% in the year to May.
The data comes amid increased speculation that the European Central Bank will tighten fiscal policy at the July meeting, as inflation remains about the 2% target set for the medium term. The bank already increased interest rates by a quarter-point on Apr. 7, and Luigi Speranza of BNP Paribas said, “We continue to believe that the central bank will continue the normalization of policy rates beyond the flagged rate hike in July.” Additionally, ECB President Jean-Cluade Trichet said on Thursday, “Risks to the outlook for price stability are on the upside,” and said that “strong vigilance in warranted.” The aggressive language has been widely linked to a signal for a move at the next policy meeting.
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