Eurozone CPI Confirmed at 3.2%, Services Inflation Sticks at 3.5%

Euro area headline inflation was confirmed at 3.2% in May, up from 3.0% in April and the highest reading since September 2023. Energy prices drove the increase, rising 10.8% year-on-year, matching the preliminary estimate.

Services inflation, the European Central Bank's main concern, came in at 3.5% in May, up from 3.0% in April. That pushed core annual inflation to 2.6%, the highest since April last year. Food price inflation eased to 1.9% from 2.4%.

The data reinforces the stagflation narrative that has been building ahead of the summer. Growth is sluggish, price pressures are not fading fast enough for the ECB to signal a clear easing path. The services component is sticky – wage growth and labour shortages keep feeding through to prices in hospitality, travel, and other contact-intensive sectors.

For the euro, the confirmation does not change the immediate calculus. The ECB meets next week, and markets are pricing a 25-basis-point cut. The question is what comes after. A higher core print and stubborn services inflation argue against a rapid cutting cycle. Traders will watch the updated staff projections for growth and inflation, due alongside the decision.

The yield spread between German and Italian bonds widened slightly after the release, reflecting the tension between a dovish ECB and persistent price pressures. The euro held near $1.0850, little changed on the session.

Next week's ECB meeting is the next concrete marker. The rate decision is due Thursday, followed by President Lagarde's press conference.