Modelling A.I. in Economics

Euro zone inflation falls sharply in May, easing pressure on ECB

Inflation in the euro zone fell more than expected to 6.1% in May from 7% in April, according to data released by Eurostat on Tuesday. The decline was driven by a fall in energy prices, which fell by 4.1% in May from April. Food prices also fell, by 0.7%.

Core inflation, which excludes energy and food prices, fell to 5.3% in May from 5.6% in April. This was also below expectations, which were for core inflation to fall to 5.4%.

The fall in inflation is a welcome relief for the European Central Bank (ECB), which has been under pressure to raise interest rates in order to combat inflation. However, the ECB is likely to remain cautious, given that inflation is still well above its target of 2%.

In a statement, the ECB said that it "continues to monitor developments in inflation closely" and that it "will act in a timely manner to ensure that inflation returns to its target over the medium term."

Analysts said that the fall in inflation was likely to be temporary, and that it was too early to say whether the ECB would raise interest rates in July.

"The decline in inflation is likely to be temporary, as energy prices are expected to rise again in the coming months," said Andrew Kenningham, an economist at Capital Economics. "We still think the ECB will raise interest rates in July, but the pace of tightening will be gradual."

The fall in inflation is good news for consumers, but it could also lead to slower economic growth. The ECB is likely to balance the risks of inflation against the risks of a slowdown when it decides on its monetary policy in July.

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