In the four zones covered (United States, Eurozone, United Kingdom, Japan), wage growth continues to outstrip inflation, supporting household purchasing power gains, but contributing, apart from Japan, to keeping inflation in services at high levels. Price pressure indices (page 19) and producer prices are recovering moderately.

In the US, the CPI report for May shows encouraging signs of disinflation. The index, which excludes food, energy and shelter, fell below 2% year-on-year for the first time since March 2021. This mainly reflects the stronger deflation in durable goods, particularly used vehicles (-9.3% y/y compared with -6.9% the previous month), while inflation in services was down slightly but still high, at 5.2% compared with 5.3% in April. Household inflation expectations over the medium term (1 year) and long term (5 years) have both moved back into line with observed inflation (page 21).

In the Eurozone, inflation picked up slightly, rising from 2.4% y/y in April to 2.6% in May, with a particularly marked rebound in Portugal (+1.5 pp, to 3.8%), Cyprus (+0.9 pp, to 3.0%) and to a lesser extent in Germany (+0.4 pp, to 2.8%) and Spain (+0.4 pp, to 3.8%). Conversely, inflation fell in Latvia (-1.1 pp, to 0.05%), Greece (-0.8 pp, to 2.4%) and Croatia (-0.4 pp, to 4.3%). The ECB will also take note of the slightly favourable trend in the PCCI index, which fell from 1.8% year-on-year in April to 1.7% in May, even though the weighted median rebounded from 2.5% to 2.8%. The “supercore” measure is stable at 2.9% y/y (page 9). While forecasters' medium and long-term inflation forecasts are fairly close to the current level, household forecasts remain well above it (page 22).

Inflation in the UK made a remarkable return to target, falling back to 2% in May, thanks in particular to stronger deflation in energy. In fact, the UK is the only economy of the four major blocs to continue to benefit from this effect, while inflationary pressures are again emerging on this component in the US, the eurozone and Japan (page 6). This favourable effect is set to continue this summer, due to the planned 7.2% cut in the ceiling on regulated gas and electricity tariffs, following the 12.3% reduction agreed in April. Durable goods were the second biggest deflationary item (-3.8% y/y), driven down mainly by used vehicles (-11.2%) and large household appliances (-7.5%). Core inflation has also eased, to 3.5%, but inflation in services remains high (5.7%).

In Japan, inflation is falling again, after a slight rebound over the winter. Total CPI inflation slipped from 2.7% y/y in March to 2.5% in April, the same rate as the core measure (excluding fresh food and energy). The annual rise in food prices, which in April accounted for more than a third (1.1 percentage points) of total inflation, nevertheless eased to 4.3%. On the other hand, market expectations, reflected by the break-even inflation rate, and household expectations are rising, as are scheduled earnings, which broke through the 4% year-on-year barrier in April (page 27).

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