Euro area headline inflation rose to 3.2% year-on-year in May, with core inflation at 2.5%, according to Société Générale economist Sam Cartwright. The increase was primarily driven by the services sector, rather than energy, and was partly influenced by Easter timing effects. Both headline and core inflation figures are tracking slightly above the European Central Bank’s (ECB) March projections, reinforcing expectations for a rate hike in June. Société Générale notes that headline inflation is 0.1 percentage points higher and core inflation is 0.2 percentage points higher than the ECB's March forecast for the second quarter of 2026, supporting the case for a June rate hike [1].
Nordea analysts Tuuli Koivu and Anders Svendsen also anticipate the ECB will begin a new hiking cycle in June, citing persistent inflation pressures and a resilient labour market. They expect four rate hikes before the ECB pauses, arguing that even if energy disruptions ease, underlying price pressures—especially in services—will require additional tightening. Nordea highlights that PMIs indicate price pressures have already spread to the services sector, and that headline inflation is likely to be slightly higher than the ECB staff’s March projections in Q2 2026. They forecast that four rate hikes will be sufficient to anchor inflation expectations during upcoming wage negotiations [2].
Looking forward, Société Générale’s baseline assumes the Strait of Hormuz will reopen at the end of June, which could push Brent crude prices slightly higher in the near term. However, most of the pass-through from Brent to fuel prices has already occurred, so energy inflation is expected to rise only marginally as households renew utility contracts at higher prices. If the EU allows governments to spend an additional 0.3% of GDP on energy-related support outside its fiscal framework, this could temporarily dampen headline inflation, though indirect effects may feed through later in the year. Société Générale expects headline and core inflation to peak at around 3.8% and 2.8% year-on-year, respectively, in early 2027, driven by indirect effects and supply chain disruptions in energy-related commodities. Domestic demand is expected to be supported by German fiscal loosening, AI-related investment, a recovering housing sector, and ongoing NGEU funds [1].
Both sources agree that inflation pressures, particularly in services, are persistent and that the ECB is likely to respond with rate hikes starting in June. However, Nordea projects a more aggressive tightening cycle with four hikes, while Société Générale focuses on the immediate June hike and anticipates only a modest further rise in energy inflation ahead [1][2].
CONCLUSION
Both Société Générale and Nordea expect the ECB to begin raising rates in June due to persistent inflation pressures, especially in the services sector. Nordea forecasts four rate hikes before a pause, while Société Générale highlights the near-term impact of energy and fiscal measures. The consensus is that inflation remains above ECB projections, prompting a high-impact policy response.