The statistical data released by Eurostat on May 20th shows that the inflation rate in the European Union in April was 3.2% on an annual basis, higher than 2.8% in March and also higher than 2.4% in the same period last year. In addition, affected by the soaring energy prices, the inflation rate in the Eurozone in April was 3.0% on an annual basis, higher than 2.6% in March and also higher than 2.2% in the same period last year.

This rebound in inflation has broken the previous downward trend for several consecutive months. Energy prices are the main factor driving the rebound in inflation. The escalation of the situation in the Middle East has led to fluctuations in international oil prices, which in turn have been transmitted to the European energy market. Apart from energy, food and service prices still maintain a certain stickiness, and the pressure of core inflation has not completely subsided. The 2% medium-term inflation target previously set by the European Central Bank still faces challenges, and the room for monetary policy adjustment is restricted.

Looking at the performance of member countries, the divergence in inflation remains obvious. Some Southern European countries, driven by the recovery of tourism and domestic demand, have relatively prominent price increases; while Northern European countries are affected to different degrees due to differences in energy structures. The European Commission had previously predicted that the inflation rate in the European Union would remain around 2.5% in 2026, but the unexpected rebound in April data may prompt institutions to raise their expectations.

For the European Central Bank, the rebound in inflation has increased the complexity of monetary policy decisions. On the one hand, raising interest rates may suppress the fragile economic recovery; on the other hand, if inflation continues to deviate from the target, it will damage the credibility of the central bank. The market generally expects that the European Central Bank will keep interest rates unchanged at the June meeting, but the wording may tend to be hawkish. For consumers and businesses, the rebound in inflation means a decline in real purchasing power and an increase in production costs, and the pressure on living costs is difficult to ease in the short term.