Core eurozone inflation remains 'disappointing'

Eurozone inflation in remained entirely unchanged in Friday's second estimate in line with the market's expectations.

Consumer price inflation increased to 1.9% year-over-year in May from 1.2% in April, in line with the initial estimate and consensus.

The core rate rose to 1.1% from 0.7% in April, also in line with the consensus and first estimate. On a month-over-month basis, core CPI was up 0.3% from 0.2% the month before, also as earlier indicated.

The ECB recently upped its core inflation forecast to 1.6% for 2019 and 1.9% for 2020.

Sharply higher energy and services inflation was the primary driver of the rise in inflation for May, with energy prices jumping up 6.1% on the year, accelerating from a 2.6% rise in April, while services inflation rose to 1.6% from 1.0%. Non-energy goods inflation was unchanged at 0.3%.

Non-energy goods inflation was disappointing, said economists at Pantheon Macroeconomics, with the markets’ forecasts for year-end core inflation currently standing at about 1.3%.

"The lagged effect of the stronger euro points to further downside risks in the near term, but the trend in the PPI points to a rebound to about 0.5% soon."

The ECB recently upped core inflation forecast for 2019 and 2020 "looks too optimistic to us, but this is primarily a signal to markets that the central bank believes that it is reaching its target even as it begins to gradually remove stimulus", Pantheon said. "If it didn’t, it arguably would have to ease policy further. The key message for investors is that rates will remain low for most of next year, and increase only very slowly hereafter."