The cost-of-living squeeze across Europe intensified as consumer price inflation rose to 3.2% in May 2026, up from 3% in April, reflecting the negative impact of the global energy crisis on the continent’s economies.
The latest economic data reflected that the May CPI represented the highest reading since the current inflationary trend began accelerating in March 2026, overshooting the European Central Bank’s (ECB) medium-term target of 2%
According to morning brief on the inflationary trend by First National Bank, the persistent upward creep over the past three months is driven primarily by energy prices triggered by the Middle East ongoing war, which the ECB warned had already altered price dynamics in a lasting way and implying that policymakers may need to respond even if the conflict were to end immediately.
An analysis of the CPI on country-by-country basis showed that Spain’s annual CPI held at 3.2% in May with core inflation ticking up to 2.9%; French inflation climbed to 2.8%, its highest in more than two years; while German inflation eased to 2.6% from 2.9%, below consensus of 2.9%.
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Based on the May CPI rates in the economies, analysts are projecting a June ECB rate hike. For instance, a Bloomberg survey of economists revealed that they were forecasting two 25-basis points (bps) increases in 2026 (June and September) with the deposit rate currently at 2.15% following a full easing cycle through mid-2025.
In a note, First National Bank stated that while commentary from policymakers suggested a second hike beyond June is “more likely than not”, the timing remained open.
Experts noted that for rate-sensitive sectors like banks, real estate, and utilities, the repricing of the ECB’s reaction function from easing to tightening represented a shift in the discount rate environment, especially based on how rapidly the inflation trajectory reversed from 1.7% in January 2026 to 3.2% in May
