Higher Core Inflation Facing Upward Risks

The May Euro Area inflation report showed headline HICP at 3.2% and core at 2.5%, both slightly above expectations due to strong services momentum. SEB expects this to support the case for higher ECB policy rates while raising the near-term core inflation outlook.

Key Takeaways

• 1.Service prices are currently the primary driver lifting core inflation in the Euro Area.
• 2.The initial direct impact from the energy price shock is largely over.
• 3.Core inflation remains strong despite expectations of limited indirect effects from energy costs so far.

Table of Contents

• Key points
• Higher inflation, ambiguous policy impact
• Energy and food holding back headlines
• Higher core, but still too early to talk about indirect effects
• Euro Area inflation
• Initial energy shock to HICP
• Euro area inflation momentum
• Services (overall ex goods)

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