Eurozone inflation slowed sharply in May, preliminary data from Eurostat showed, with the headline rate dipping to 6.1% from 7.0% in April. Core inflation slowed more than expected by analysts, offering encouragement for the doves on the ECB looking to slow the speed of policy tightening in coming months.
Core inflation, the easiest way to gauge the underlying inflation the ECB's Governing Council is focused on, fell to 5.3% from 5.6% in April. Economists had been looking for a fall to 5.5%. Service sector inflation also slowed, dipping to 5.0% from 5.2% in April. Although the slowdown in prices was broad-based, energy inflation was a driver of the headline number, dipping to -1.7% y/y from 2.4% last month.
The slowing inflation will make the case easier for the Governing Council's doves and -- given no sharp uptick in coming months -- could pave the way for a peak rate below 4%. (MNI SOURCES: Most At ECB See 4% Rate As Only Outside Chance)
One note for the hawks in Thursday's data was the continued strength in the labour market, with April unemployment rate at a record low 6.5%.
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