Nordea economists Tuuli Koivu and Anders Svendsen say rising Euro-area headline and core inflation, driven mainly by higher energy costs and robust services prices, strengthens the case for an ECB rate hike in June. They highlight upside revisions to inflation projections, persistent price pressures, and a still-solid labour market as reasons to expect four ECB hikes before a pause.

Inflation dynamics back further ECB tightening

“The flash inflation figures support an ECB rate hike at the June meeting, even though energy remains the main driver of headline inflation.”

“Core inflation surprised slightly to the upside. The increase from 2.2% in April to 2.5% in May was partly due to a base effect stemming from very weak core inflation a year earlier but also the monthly momentum in core inflation was rather strong.”

“In monthly terms, both service and non-energy industrial goods prices increased at a robust pace. Inside services, transport seems to play a role and is of course linked to high energy prices.”

“Compared to the ECB staff’s March projections, headline inflation is likely to be slightly higher than expected in the second quarter of 2026 and the June projections are therefore likely to revise the baseline profile somewhat higher, at least in the near term.”

“However, there remains considerable uncertainty regarding the potential second-round effects of higher energy prices and the future path of core inflation.”

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