Euro area's May HICP inflation expected at 0.3% yoy

The flash estimate of euro area HICP inflation in May was in line with expectations and quickened to 0.3% yoy in May from 0.0% yoy in April. Core inflation came in higher than expected at 0.9% yoy, up from 0.6% % yoy in April. 

The details of the core inflation data, with the rise from 0.6% yoy to 0.9% yoy adding 17bp to the headline annual rate, surprised the analysts. The higher prices paid for services that is risen by 1.3% mom, and pushing the annual rate from 1.0% yoy to 1.3% yoy (adding 16bp to the headline) are key to surprise the analysts. 

Prices of non-energy industrial goods rose, as expected, from 0.1% yoy to 0.3% yoy (adding an additional 3bp). Meanwhile, the energy component rose from -5.8% yoy to -5.0% yoy in May, lower than the expectation given the 2% rise in gasoline prices in May, and added 9bp to the headline figure, says Standard Chartered. On the back of firm fresh food prices, the food component rose from 1.0% yoy to 1.2% yoy in May, adding 5bp.

The HICP breakdown will not be available until the final HICP is released. On a country basis, services prices quickened all over the euro area. The annual rate of services price inflation rose in the transport sector, as well as in the communications sector, but these increases owe mainly to base effects and should reverse themselves in the coming months, says Standard Chartered. 
Hotel, restaurant and holiday packages components, given the unusually high number of days off in May and the approach of the summer holidays gave the biggest surprise. 

According to Standard Chartered estimation, the core inflation rate, at 0.9%, was very soothing and much higher than expected, the euro area HICP inflation is expected at average of 0.3% in 2015 and 1.5% in 2016, while the core metric should remain stable at 0.9% in 2015 and 1.1% in 2016.