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Eurozone inflation higher than expected in May

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[BRUSSELS] Eurozone inflation was higher than expected in May, data showed on Tuesday, as consumer prices started rising again after five months of falls and stagnation despite a continued strong drag on the index from cheaper energy.

The European Union's statistics office Eurostat said consumer prices in the 19 countries sharing the euro rose 0.3 per cent year-on-year last month after a flat reading in April, beating market expectations of a 0.2 per cent increase.

The Eurostat estimate does not contain monthly data, but the annual data showed that more expensive unprocessed food and services had the biggest upward impact on the overall index.

Excluding the volatile energy prices, which were 5 per cent lower in May than 12 months earlier, consumer prices rose 1.0 per cent.

Excluding energy and unprocessed food - or what the European Central Bank calls core inflation - prices were up 0.9 per cent, accelerating from 0.7 per cent in April.

The inflation rebound could mean that the ECB's sovereign bond buying programme, aimed at injecting more cash into the economy to prevent deflation and started in March, has brought rapid results.

But prices at factory gates in April, however, fell 0.1 per cent month-on-month for a 2.2 per cent year-on-year decline, weaker than market expectations of a 0.1 per cent monthly rise and a 2.0 per cent annual fall.

Producer prices are an indication of inflationary pressure early in the pipeline, because unless their changes are absorbed by retailers via profit margins, they tend to translate into consumer prices.