01 June 2022
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Eurozone inflation higher than expected in May

By Edward Bell

  • Eurozone inflation accelerated to 8.1% year on year in May, faster than the market had been expecting and up from 7.5% recorded in April and March. As shown in the individual constituent member state inflation prints, higher energy costs were a big part of what pushed prices higher in May and with the EU now firming up on barring imports of Russian oil, energy inflation is likely to become entrenched. Coming on the back of high inflation prints in Germany and France as well as other smaller economies, the pressure will now be on the ECB to accelerate its pace of policy normalization and put a 50bps hike in play for its July meeting when it is widely anticipated to start hiking rates.
  • The Turkish economy recorded real GDP growth of 7.3% y/y in Q1, broadly in line with the consensus projection of 7.2% but slower than the 9.1% hit in the final quarter of 2021. On a q/q basis, growth was 1.2%. The strong growth has been fueled in large part by household spending as private consumption expanded 19.5% y/y, while exports, benefitting from the lira’s depreciation, grew 16.8%. Growth is expected to remain robust in the second quarter but slow in H2 as reopening gains pass through and high inflation starts to crimp spending. In other data, the trade balance in April came in at –USD 6.1bn, nearly twice what it was in April 2021. Exports rose by a quarter to USD 23.4bn but imports rose by 35% to USD 29.5bn as energy prices soared. Over January-April the trade deficit was up 130% to USD 32.6bn.
  • India’s economy expanded by 4.1% in the January – March period, bringing total fiscal year 2022 growth to 8.7%, lower than the government had been expecting. The services and agricultural sectors helped to provide growth in the final months of the fiscal year while industry was a relative underperformer. For this year, India’s growth will be at risk from high inflation and the RBI’s tightening of monetary policy in order to stave off high prices.
  • The Conference Board measure of consumer confidence in the US fell to a three-month low in May, falling to 106.4. Inflation is the clear culprit in waning consumer sentiment even as spending has remained at a steady pace. According to the survey, consumers expect to see prices continuing to move higher while they are also putting off large-ticket purchases likes cars, homes and appliances.
  • June prices for petrol have been announced by the UAE fuel price committee – Super 98 will cost AED 4.15/litre and Special 05 AED 4.03, a rise of 13.5%.

Today’s Economic Data and Events

  • 09:00 IN manufacturing PMI May
  • 11:00 TU manufacturing PMI May
  • 13:00 EC unemployment rate April: forecast 6.8%
  • 18:00 CA Bank of Canada rate decision: forecast 1.5%
  • 18:00 US ISM manufacturing May: forecast 54.5
  • 18:00 US JOLTS job openings Apr: forecast 11.4m

Fixed Income

  • After a holiday break to start the week US Treasury markets closed lower overnight. Inflation anxiety and uncertainty over just how far the Federal Reserve will go on tightening policy are weighing on the market. Yields on the 2yr UST added 8bps to close at 2.5565% while the 10yr yield rose nearly 11bps to 2.8441%.
  • European bond market action was roughly similar. The 2yr Schatz added 5bps to 0.495% while the 10yr bund rose nearly 7bps to 1.12%. In the UK, gilt yields pushed substantially higher with the 2yr up 10bps to 1.577% and the 10yr up 11bps to 2.098%.


  • Currency markets swung toward the dollar overnight as risk apprehension seemed to take hold once more. EURUSD dropped 0.4% to 1.0734 while GBPUSD fell 0.4% to 1.2602. USDJPY found no haven respite, rising by 0.85% to 128.67.
  • In commodity currencies USDCAD managed to continue its run in favour of the loonie, down marginally ahead of today’s Bank of Canada meeting. AUDUSD fell 0.26% to 0.6514 while NZDUSD dropped 0.64% to 0.6514.


  • Following Friday’s strong gains, US equity markets returned to trading on the back foot after the public holiday on Tuesday as risk-off sentiment returned to the fore. All three major indices lost ground, with the NASDAQ, the S&P 500 and the Dow Jones dropping -0.4%, -0.6% and -0.7% respectively.
  • In Europe, the FTSE 100 eked out a 0.1% gain but both the DAX (-1.3%) and the CAC (-1.5%) closed lower.
  • Locally, both the DFM and the Tadawul closed 0.1% higher while the ADX added 1.5%. The EGX 30 gained 0.4% and the Borsa Istanbul 0.8%.


  • Oil prices gave up early gains overnight in response to press reports that OPEC+ could end Russia’s participation in its market management strategy, setting the market up potentially for considerable output increases from Saudi Arabia and others. Brent settled higher by around 1% but the new trading contract is down sharply in early trade today. WTI settled lower by about 0.3% to USD 114.67/b and is treading water at the start of the day.

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Written By

Edward Bell Head of Market Economics

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