The euro zone inflation rate rose to its highest in more than two years in May as consumer morale sank to its lowest this year.
Consumer prices rose by a larger-than-expected 2.5 per cent from a year ago, their fastest annual rate of increase since March 2002, from April's 2 per cent, Eurostat said today.
The latest inflation rate data, which sparked a decline in German government bond futures prices, compares with the European Central Bank's goal of keeping the inflation rate below but close to 2 per cent over the medium term.
Financial market analysts said an interest rate cut might now be less likely but they are not expecting an increase in rates anytime soon given fragile consumer morale.
Consumer sentiment sank to its lowest this year in May and business morale dipped, according to separate data from the European Commission.
"Oil prices are likely to keep inflation high in the euro zone for the next couple of months before falling thereafter, but with concerns about the outlook for activity persisting, an ECB rate hike remains a considerable way off," said analysts at ING Financial Markets.
The latest euro zone data comes after national reports showed the inflation rate in Germany, Europe's biggest economy, hit its highest in 28 months in May and rising fuel costs pushed up Belgian May inflation to its highest since March 2002.
Although Italy's inflation rate was unchanged at 2.3 per cent in May, economists had revised up their forecasts for May euro zone inflation following the release of the stronger-than-expected German data.