Report
Bastien AILLET ...
  • Hadrien CAMATTE
  • Jesus Castillo

Euro area May flash HICP: Headline inflation back below 2%, with falling services inflation

Euro area headline flash inflation fell to 1.9% Y/Y in May, dropping below 2% for the first time since September 2024. Core inflation also decreased, to 2.3% from 2.7% (lowest level since January 2022) , driven by a reduction in services inflation , which fell to 3.2% Y/Y from 4.0% in April—its lowest level since March 2022. This sharp decline suggests that the April increase was a temporary bump, largely influenced by volatile package holiday prices. A wide array of indicators (including the ECB wage tracker and negotiated wages) points to renewed disinflation in the services sector in the coming months. Inflation for non-energy industrial goods remained unchanged at +0.6% for the fourth consecutive month, while energy inflation remained stable at -3.5%. ► Germany : Harmonized inflation slowed down to 2.1% Y/Y in May, down from 2.2% in April, slightly exceeding consensus expectations. Looking at the sub-components, services inflation decreased strongly from 3.9% Y/Y to 3.4%, while inflation in goods increased this month to 0.9% , up from 0.5%. Finally, the energy component continues to have a negative contribution. Despite opposing contributions from the components of goods and services, core inflation edged down slightly in May to 2.8% Y/Y after 2.9% in April. ► France : May inflation, as measured by the HICP , stood at 0. 6 % Y/Y, down from 0.9% in April , marking its lowest level in four years and the lowest print within the euro area. Services inflation significantly decreased to 2.1%, down from 2.4% in April, with a notable decline observed in transportation and communication service prices. Assuming overall stable oil prices, we anticipate that French inflation will remain below 1% until the end of the year (except for September) and will average 0.8% in 2025. ► Italy : In May, inflation decelerated to 1.9% from 2% previously, while core inflation declined to 1.9% from 2.2%. Services prices accounted for most of the decrease. Following a sharp rise in service prices in April, which reached 3.4% Y/Y compared to 2.8% in March, they decelerated to 2.9% in May. Additionally, energy prices fell from -0.7% Y/Y in April to -1.8% in May. In the coming months, we foresee inflation remaining around 1.9% until December 2025. ► Spain : According to preliminary estimates, inflation has declined to 1.9% in May from 2.2% in April. A lthough no detailed breakdown is available at this stage , the statistical office indicated that the deceleration is primarily due to the slowdown in entertainment and leisure inflation after significant increases in April. Core inflation reached 2.1% in May, down from 2.5% in April. We anticipate a new 25 bps ECB rate cut on 5th June and the fall in services inflation paves the way for a potential dovish bias during C. Lagarde’s press conference . Beyond June, we expect two additional rate cuts and a terminal rate at 1.5% (see ECB Preview ).
Provider
Natixis
Natixis

Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.

 

Analysts
Bastien AILLET

Hadrien CAMATTE

Jesus Castillo

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