Consumer prices were surprisingly robust in May. A provisional 0.5 percent monthly rise was comfortably stronger than expected and, with base effects significantly positive, large enough to lift the annual inflation rate by 0.6 percentage points to 2.2 percent. This was the first time that the 2 percent mark has been breached since February 2017 and equals the highest reading since November 2011.
The flash HICP followed suit with an even larger 0.6 percent monthly increase that boosted its annual gain from 1.4 percent to also 2.2 percent.
The pick-up in the yearly CPI rate was only partly attributable to energy where inflation climbed more than 2 percentage points to 5.2 percent. Hence, services (1.9 percent after 1.5 percent) more than reversed their 0.3 percentage point drop in April while the rate in goods leapt nearly a full percentage point to 2.5 percent. Elsewhere, food (3.5 percent after 3.4 percent) was broadly flat as were rents, excluding utilities (1.6 percent). Accordingly, the signs are that core inflation also accelerated this month.
The sizeable jump reported in German inflation makes for upside risk to tomorrow's Eurozone report. Indeed, with the Spanish rate released earlier also climbing some 0.9 percentage points to 2.0 percent, the current market consensus (1.6 percent) is probably too low. More importantly, it looks as if the underlying rate will similarly post a significant increase. Unwinding Easter distortions could still be a factor in this but any acceleration in the core rate will be more than welcome at the ECB.