European headline inflation has fallen faster than expected due to lower energy costs. EU headline CPI inflation fell from 7% to 6.1% in May as food inflation also slowed. Core inflation (excluding volatile energy and food costs) fell more than expected as it dropped from 5.6% in April to 5.3%. The EU data was not a particular surprise as several of the continent’s biggest economies including Germany, France and Spain had already reported a slowdown in their inflation rates.
Although consumer confidence remains depressed, European consumer expectations for inflation are now starting to fall as well. This is in contrast to the UK where rising food costs are only just beginning to slow. European Central Bank president Christine Lagarde was quick to say further rate hikes are still necessary. However, the better inflation data caused speculation that the ECB will hike by 0.25% at this month’s meeting before pausing. German, French and Spanish government bonds have all risen slightly this week.
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