Balazs Karanyi

Frankfurt (Reuters) - The rise in price increases in Europe exceeded expectations last month and basic price pressures accelerated, an unpopular trend still cannot stop another rate to lower interest rates to isolate the economy from the impact of the global trade war.

The inflation rate in 20 countries that shared the euro currency at 2.2% was 2.1% higher than expected in a Reuters poll of economists, as prices of services increased and unprocessed food offset the decline in energy costs.

The increase in service prices pushed up base or core inflation, which excludes volatile food and energy prices, from 2.4% to 2.7%, higher than expectations for 2.5%, indicating that domestic price pressure is higher than thought.

While ECB policymakers often place great emphasis on inflationary prints, especially the rise in core prices, a trade war between the U.S. government and the rest of the world may be very important at the June 5 policy meeting on June 5.

"The high level of uncertainty around the global and eurozone growth outlook suggests that the ECB may not be highly concerned about higher-than-expected inflation in April," Nordea economists said in a note.

Indeed, financial investors continue to see an opportunity to see a tax reduction of about 85% on June 5, and then move at least again before the end of the year, which will bring the ECB deposit rate to 1.75% or less.

Nevertheless, a massive increase in service prices may strengthen the policy Hawks’ appeal to slow down the pace of policy easing before there is decisive evidence that the target has been reached.

Policymakers’ speeches on record have also begun paving the way for the ECB’s eighth cut in 13 months, as prices in the trade war will put price weights and may even lower inflation below targets.

Indeed, the communication between banks has changed. Although the ECB earlier saw inflation recovery in Target only in 2026, policy makers now say it has basically achieved its goal.

This is because trade conflicts slowed economic growth and curbed investment, and have pushed energy prices and strengthened the euro to make imports cheaper. Furthermore, many fear that China will start to dump its surplus products in Europe as it has limited access to the United States

"The increase in core components today has not changed the outlook, and this has become more circulating," said Riccardo Marcelli Fabiani of Oxford Economics.

"The growth concerns of the turbulent financial markets have caused a sharp drop in international oil prices, which not only delays energy inflation, but also means cheap inputs in commodity production," he said.