Eurozone HICP Preview: Forecasts from four major banks, sharp drop in inflation

Eurostat will release the preliminary estimate of Eurozone Harmonised Index of Consumer Prices (HICP) data for May on Thursday, June 1 at 09:00 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of four major banks regarding the upcoming EU inflation print.

Headline HICP is expected to decelerate at 6.3% year-on-year vs. 7.0% in April and annual core HICP is seen softening marginally to 5.5% against the former release of 5.6%. If so, headline would be the lowest since February 2022 and would also be the first deceleration in core since June 2022.

Commerzbank 

“Inflation is expected to have fallen from 7.0% in April to 6.0% in May. Half of the decline is due to lower energy prices. The price correction for food pushed down the inflation rate by an estimated 0.3 percentage points. However, the inflation rate excluding energy and food is also expected to have fallen by 0.2 percentage points to 5.4% in May. The main reason for this is the introduction of the 49-Euro ticket for regional public transport in Germany.”

Nomura

“We forecast headline Euro-area HICP inflation to fall to 6.2% YoY in May (0.8ppt lower than in April), and core HICP inflation to remain unchanged at 5.6% YoY. Core price momentum is likely to remain strong enough to unnerve the ECB. We think it will remain concerningly high owing to strong labour market pressures, revived inflation expectations and survey evidence of continued upward inflationary pressures. We think a robust core inflation print lends support to our forecast for two further 25 bps hikes from the ECB at its next meetings, bringing its terminal rate to 3.75%.”

SocGen

“We expect the May inflation data to deliver another massive decline in headline inflation from 7% yoy in April to 6% in May. Meanwhile, we think easing goods inflation will help core inflation fall from 5.6% to 5.5%, with a downside risk of 5.4% – which is set to increase the pressure on the ECB to do more rate hikes.”

Citi

“Headline inflation should make another major step down in May as base effects in energy kick in, down to 6.3% from 7.0% in April. We project core HICP inflation to also have eased from 5.6% to 5.5% YoY, with a sub-trend 0.2% MoM gain in seasonal adjusted terms, with temporary factors behind the drop. We though see core CPI re-accelerating in June following the acceleration in negotiated wages in 1Q to 4.3% and likely to pick up further in 2Q.”