Inflation Cools More than Expected, Core Decelerates

SPAIN MAY FLASH HICP -0.2% M/M (FCST +0.2%); APR +0.5% M/M

SPAIN MAY FLASH HICP +2.9% Y/Y (FCST +3.3%); APR +3.8% Y/Y

• Spanish May inflation kicked off the key eurozone HICP data round, easing by 0.9pp to +2.9% y/y and surprising 0.4pp to the downside. This follows the brief energy-base effects jump which underpinned the April uptick. Declining fuel prices and softer food inflation underpinned the May deceleration. Harmonised prices fell -0.2% m/m, against expectations of a +0.2% m/m uptick.
• Despite the brief flash report only highlighting declines in non-core goods, Spanish core inflation (non-harmonised) also surprised to the downside at +6.1% y/y (down 0.5pp).
• Spanish PMI data has flagged intensifying input and output cost inflation, due to higher wages and robust services demand. This makes the slowdown in core CPI likely to have been largely goods-related.
• The May flash eurozone aggregate inflation rate (due Thurs) should also resume a downwards trajectory. Consensus is looking for a 0.7pp deceleration to +6.3% y/y, which would be the lowest since February 2022.
• The euro area core index is expected to edge down by another 0.1 pp to +5.5% y/y (only 0.2pp below the euro-era high). Today's Spanish data implies core could be slightly lower, yet this is dependent on indications in tomorrow's French and German reports.