European zone inflation recorded a surge to levels that exceeded European Central Bank targets in May. This will increase the challenge for the ECB to deal with criticism from consumers.
European zone inflation rose to a reading of 2% in May from a reading of 1.6% achieved in April. The increase was driven by higher cost increases to the fastest level since the end of 2018 and this reading exceeded the ECB’s target based on data released by Eurostat.
This May figure also surpassed the expectations of a Reuters survey which targeted a 1.9%increase. According to ING economist Bert Coljin, although the rise in inflation is expected, not many people expect it to grow faster, plus the economy has just started to grow from the impact of the pandemic.
The ECB has insisted that this inflation rate is not the rate they are hoping for at the moment. Thus, the policy implemented is expected to be loose for the coming years.
By analogy, the ECB thinks that the rise in inflation is temporary. This price growth is expected to start fading early next year and inflation will be below target. In addition, ECB policies are less effective against short -term price movements. So this becomes the argument that the ECB will keep monetary policy loose.
