According to Nordea economists Tuuli Koivu and Anders Svendsen, rising headline and core inflation in the Euro area, primarily driven by higher energy costs and robust services prices, is reinforcing expectations for the European Central Bank (ECB) to raise interest rates at its June meeting [1]. The economists note that core inflation increased from 2.2% in April to 2.5% in May, a rise attributed partly to base effects from weak core inflation a year earlier, as well as strong monthly momentum in core inflation [1].
Both service and non-energy industrial goods prices saw robust monthly increases, with transport services notably impacted by high energy prices [1]. Nordea highlights that, compared to the ECB staff’s March projections, headline inflation is now likely to be slightly higher than previously expected in the second quarter of 2026, suggesting that the upcoming June projections will revise the baseline inflation profile higher, at least in the near term [1].
The economists also point to persistent price pressures and a still-solid labour market as additional reasons to expect four ECB rate hikes before a pause [1]. However, they caution that there remains considerable uncertainty regarding potential second-round effects of higher energy prices and the future trajectory of core inflation [1].
CONCLUSION
Rising inflation and robust economic indicators are prompting expectations for multiple ECB rate hikes, starting with the June meeting. However, uncertainty remains around the longer-term inflation outlook, particularly regarding energy prices and core inflation dynamics.