MARKETS & FX
Eurozone May CPI Accelerates to 3.2%, Strengthening Hike Bets
# Eurozone# Inflation# ECB# Rate hikes
Key Points
- Eurozone May CPI rose 3.2% YoY, accelerating from prior month
- Rebound revives market bets on ECB rate hikes
- Sticky prices show inflation is not yet tamed
- Euro rate outlook moves the EUR/JPY cross
Analysis
A re-acceleration in eurozone inflation is a reminder to anyone who assumed price pressures had peaked. With May CPI back at 3.2%, markets immediately repriced hike expectations, showing European price stickiness is more stubborn than hoped.
Structurally this hands the ECB a dilemma: it cannot pivot to easing while inflation is unstable, yet staying tight means accepting slower growth. For Japan, the euro rate outlook directly shapes EUR/JPY and the hedging costs of exporters selling into Europe.
The question worth asking: with U.S. and European inflation both proving resilient, are persistently high global funding costs becoming the external pressure that makes Japan's low-rate environment hard to sustain?