European Inflation Acclerates, Will ECB Raise Rates?
European inflation rose to 3.7% in May from 3.3% the month prior on an annualized basis. Rising commodity prices have pushed inflation to the highest level since June 1992, and are eroding company profits and consumer purchasing power. Energy, food and tobacco prices all increased with energy rising 13.7% from a year earlier. Additionally, the core reading increased to 1.7% from 1.6% in April, as rising oil prices filter into other areas like transportation, which rose 5.9% from 4.8% the month prior. However, the reading was less than the 1.8% expected by economists, which will cast some doubt on a future rate hike. The acceleration of prices was expected as ECB President Trichet warned that inflation will continue to rise and that the central bank was growing concerned with the emergence of second round effects. The monetary policy leader signaled that a rate hike may be forthcoming at the next policy as he fears that companies and consumers would seek higher wages and prices, pushing inflation higher. – John Rivera, Currency Analyst