Information Summary for the June ECB Council Meeting

■ The ECB is expected to review the Middle East situation and various data before its June Governing Council meeting before deciding whether to raise interest rates.  

■ Short-term inflation expectations are rising, but long-term expectations remain relatively stable. However, we should pay attention to the potential weakening of consumption-related data. 
 
At the ECB Governing Council meeting held on April 28-29, the policy rate remained unchanged. The statement contained several expressions of concern about accelerating inflation and economic slowdown. However, ECB President Christine Lagarde stated at a press conference that "although the decision was unanimously adopted, the possibility of raising interest rates was discussed at length and in detail," suggesting that the ECB is more concerned about accelerating inflation and that discussions surrounding interest rate hikes are ongoing. The ECB is expected to review the Middle East situation and economic data in the five weeks leading up to its next Governing Council meeting on June 10-11 before deciding whether to raise interest rates.  

   Looking at inflation-related data, with further increases in energy prices, overall inflation and short-term inflation expectations have risen, but the underlying inflation trend and long-term inflation expectations remain relatively stable. The Eurozone's preliminary Consumer Price Index (HICP) rose 3.0% year-on-year in April, up 0.4 percentage points from the previous month. However, the core HICP, excluding energy, food, alcohol, and tobacco, rose 2.2% year-on-year, marking the second consecutive month of slower growth. Nevertheless, core inflation momentum calculated from the ECB's seasonally adjusted data (based on a 3-month moving average annualized year-on-year figure), showed increased growth not only in the core HICP (March: 2.1% → April: 2.5%), but also in its sub-categories of core goods (0.8% → 1.3%) and services (2.8% → 3.2%). While it's generally believed that energy prices take about six months to transmit to core inflation—a relatively long lag—the strengthening momentum in non-energy-related categories warrants attention. 

 
Looking at inflation expectations, the ECB survey on corporate financing shows that overall corporate inflation expectations remain relatively stable. Wage expectations rose 2.8% year-on-year, a decrease of 0.3 percentage points from three months ago, while the median inflation expectations for three and five years remained unchanged at 3.0%. On the other hand, in the consumer survey, household expectations for inflation three years later rose sharply to 3.0%. Although inflation expectations for five years later only rose 0.1 percentage points to 2.4%, this has returned to the highest level since statistics began in August 2022, so the results of the next survey to be released at the end of May are worth paying attention to. 

 
In terms of economic activity, the growth rate of real GDP in the first quarter (preliminary value, annualized quarter-on-quarter growth of 0.6%) slowed down. However, the negative impact of the tense situation in the Middle East on economic activity is expected to gradually be reflected in expenditure data in the future. From corporate surveys such as the PMI (final value), the negative impact of the energy shock was transmitted more significantly to the service sector (47.6) than to the manufacturing sector (52.2). This inter-sectoral disparity may be primarily due to the sharp rise in energy prices, which has suppressed real household incomes and weakened the household sector. Going forward, we must also be wary of its potential to further amplify its negative impact on consumer spending.