Inflation across the eurozone's four largest economies — Germany, France, Italy, and Spain — rose in May, driven primarily by higher energy costs. The latest figures from national statistical offices confirm that price pressures remain stubbornly above the European Central Bank's 2% target, reinforcing expectations that the ECB will deliver a rate hike at its June meeting in Frankfurt.
Germany's harmonised index of consumer prices (HICP) came in at 6.3% year-on-year in May, unchanged from April but still well above the eurozone average. France reported 5.1%, Italy 7.6%, and Spain 3.2%. While Spain's figure is the lowest among the four, it still marks an uptick from the previous month. The persistence of high inflation, especially in services and core goods, suggests that the ECB's tightening cycle may not yet be over.
Energy Costs Drive the Trend
The main driver behind the May increase was energy prices, which rose across the continent as global oil and gas markets tightened. In Germany, energy prices jumped 9.7% year-on-year, while in Italy they surged 11.2%. The pass-through of higher wholesale electricity and gas costs to households and businesses continues to weigh on consumer spending and corporate margins.
Core inflation, which excludes volatile food and energy prices, also remained elevated. In the eurozone as a whole, core inflation stood at 5.3% in April, and preliminary data for May suggests only a modest decline. This so-called 'stickiness' is a key concern for ECB policymakers, who fear that high inflation could become entrenched through wage-price spirals.
The ECB's governing council, led by President Christine Lagarde, has signalled that further rate increases are likely. Speaking in Berlin earlier this month, Lagarde emphasised that the central bank is 'not done' with its tightening campaign. Markets now price in a 25-basis-point hike at the June 15 meeting, which would bring the deposit rate to 3.5%.
Divergence Within the Eurozone
While the big four economies all face above-target inflation, the pace and composition vary significantly. Spain's lower headline figure reflects a more moderate energy price shock and a weaker pass-through to core prices, partly due to government measures to cap gas prices. Italy, by contrast, is grappling with higher energy dependence and a larger fiscal deficit, limiting its room for manoeuvre.
This divergence complicates the ECB's task. A one-size-fits-all interest rate may not suit all member states, but the central bank's mandate is to ensure price stability for the eurozone as a whole. Smaller economies like Greece, Portugal, and the Baltic states are also feeling the pinch, with inflation rates often exceeding 10% in recent months.
The broader European context matters too. The UK, outside the eurozone, reported inflation of 8.7% in April, while Switzerland's rate stood at 2.2%. Norway's central bank has also raised rates, and the European Central Bank's decisions ripple across the continent, affecting exchange rates, trade, and investment flows.
As the ECB prepares for its June meeting, the data from the big four provides a clear signal: inflation is not yet under control. The path to 2% remains long, and further tightening is likely. For European households and businesses, that means higher borrowing costs and a continued squeeze on purchasing power.
