Producer prices in the euro area fell again year-on-year for the first time since 2020. It fell 1.5% in May. That boosted hopes for a further decline in inflation.
Eurozone producer prices fell year-on-year for the first time since late 2020. Producer prices fell by 1.5% in May from the same month last year, according to Eurostat in Luxembourg. Compared with April, it was down 1.9%.
Prices for manufacturers in the industry rose more than 40 percent last summer. The trigger was the aftermath of Russia’s attack on Ukraine. Producers have gradually reduced their high prices in recent months. On a month-on-month basis, these figures were down for the fifth consecutive month.
Important indicators inflationary development
A 13.3% year-on-year drop in energy prices had a particularly positive impact. Compared to April, energy prices fell by 5.0%. Excluding the energy sector, producer prices rose 3.4 percent over the year. In April, the figure was 5.1%.
The development of producer prices is considered an important indicator of consumer prices. However, this relationship is by no means linear. While last summer’s price surge didn’t fully translate into inflation, it’s still a long way from year-over-year declines in consumer prices.
inflation expectations sink
Inflation in the euro area has gradually declined due to lower energy prices. In June, consumer prices rose only 5.5 percent from a year earlier. Inflation remained at 6.1% in May, compared with 7.0% in April.
A recent European Central Bank (ECB) survey showed consumers expect inflationary pressures to ease further. On average, in May they assumed inflation of 3.9% over the next 12 months. In April they expected 4.1%. Assume that the value remains constant at 2.5% over three years. However, this means that the ECB is still unable to achieve its 2 percent inflation target.
Visco: Inflation can fall without raising interest rates
ECB Governing Council member Ignazio Visco said inflation could fall without further rate hikes. The governor of the Bank of Italy said this could be achieved by keeping interest rates at reasonable levels for a long enough time. Interest rates have entered restricted territory. Carefully determining the duration of monetary tightening rather than further rate hikes would allow the ECB to assess the impact of its past rate hikes, Visco said.
In order to combat inflation, the European Central Bank has raised key interest rates eight times in a row, totaling 4.00 percentage points. For the next rate meeting this month, many experts expect rates to rise by a further quarter of a percentage point to 4.25%.