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Inflation up in May

Sara Kurfeß on Unsplash

After a two-month slowdown, the inflation rate in Portugal rose from 2.2% in April to 3.1% in May. According to the National Statistics Institute, this acceleration mainly refleced the base effect related to the monthly decrease registered in May 2023 (-0.7%), as a consequence of the VAT exemption for several essential food items.


The core inflation index, which excludes energy and unprocessed food products components was 2.7% (2.0% in the previous month). The annual rate of change of the index for energy products decreased to 7.8% (7.9% in April) while the estimated rate for unprocessed food increased 2.6% (nil in the previous month).


The CPI monthly rate is estimated to be 0.2% (0.5% in April and -0.7% in May 2023), while the CPI 12-month average rate was estimated to be 2.6% (the same value as in the previous month). 


The estimate of the Portuguese Harmonised Index of Consumer Prices (HICP) annual rate of change was 3.9% (2.3% in the previous month).


Inflation rises also in the eurozone


Inflation in the eurozone increased to 2.6% in May, according to the latest flash estimate from Eurostat, with Belgium, Greece and Portugal recording the highest inflation rates.


The acceleration was mainly due to the significant rise in inflation in services, which reached 4.1%, the highest level since December 2023.


Analysts were already expecting some acceleration in inflation in May and the European Central Bank had already warned that the trajectory of consumer prices would have 'bumps' in 2024. Eurostat confirmed, this Friday, that inflation in May in the euro zone it accelerated to 2.6%, after having registered 2.4% in March and April, according to the quick estimate published by the European Union's statistics body.


Inflation trajectories in the euro zone reveal enormous heterogeneity: half of the euro economies recorded inflation levels above the average of 2.6% for the euro zone as a whole. This group includes Germany (2.8%), Austria (3.3%), Spain (3.8%) and France (2.7%), among the largest economies.


Belgium approached 5% in May. Croatia recorded inflation of 4.3% and Portugal was the third economy in the euro with the highest inflation rate, rising to 3.9%, according to the Harmonized Index of Consumer Prices used by Eurostat. The lowest rates were recorded in May in Latvia (0.2%) and Finland (0.5%).


ECB rate cut

Despite the inflation rate rise in May, the European Central Bank (ECB) decided to cut interest rates for the first time in almost five years on Thursday.However, it warned that future reductions would depend on price pressures easing further.


Thursday’s quarter-point cut to 3.75%, which has not yet been replicated by central banks in the US and UK, represented a milestone in the fight against inflation after the biggest surge in prices for a generation.


ECB president Christine Lagarde said there was a “strong likelihood” the decision marked the beginning of “dialling back” rates from their all-time high. But she added that further moves would “depend on the data that we receive”.


After the announcement, traders in swaps markets lowered their bets on a second cut by September to close to 60%, down from 70%. The ECB cautioned that it was “not pre-committing to a particular rate path” and warned it expected inflation to stay above its 2% target until the final quarter of 2025.


However, the ECB will not commit to any strategy for the following four meetings until the end of the year. “The ECB will not switch to autopilot” after the first cut in June, stressed the governor of the Bank of Latvia, Martins Kazaks, the last of the members of the ECB system to make statements before the black out period of public interventions before the monetary policy meetings.


The ECB has the next monetary policy meetings scheduled for July 10th, September 12th, October 17th and December 12th.

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