Inflation data released on Wednesday on both sides of the English Channel presented a similar picture—equally inconvenient for both the Bank of England and the European Central Bank: inflation is not going away, and its nature is becoming increasingly structural.

In the UK, the annual CPI in May remained at April's level of 2.8%, with a modest monthly increase of 0.2%. At first glance, this seems stable. However, a closer look reveals a more concerning situation. Core inflation accelerated from 2.5% to 2.6%, and notably, the services sector jumped from 3.2% to 3.7%. This is the main problem for the BoE, as these data indicate that the energy shock has already transitioned into the services sector. But services—such as wages, rent, and living expenses—do not react directly to oil prices. Their acceleration suggests that inflationary pressure has penetrated the economy and will not dissipate quickly. The BoE views the services sector as a key indicator of "sticky" inflation, and its upward reversal is a serious argument against hasty policy easing.

For the Eurozone, Eurostat on Wednesday confirmed its preliminary estimate: the annual CPI in May accelerated to 3.2% from 3.0% in April—the highest since September 2023. There were no surprises for the market. Much more significant was the upward revision of core inflation to 2.5% from 2.2% in April.

This is a fundamentally different signal. The overall figure is inflated by energy prices, which have risen by 10.8–10.9% year-on-year amid Middle Eastern escalations—a shock that will begin to ease on its own with the opening of the Strait of Hormuz. However, core growth reflects pressure penetrating deep into the economy, similarly to what is occurring in the UK.

This is most clearly illustrated by the services sector: an acceleration from 3.0% to 3.5% indicates that companies and workers have already begun to embed inflation into wages and prices. Christine Lagarde warned about this in an interview with French radio: "We have absolutely started to observe indirect effects of inflation more or less everywhere in recent weeks." The latest data confirm this.

However, the picture differs by country. Accelerations were noted in Spain, Italy, France, and the Netherlands, while Germany showed a slowdown.

Recall that on June 11, the ECB raised its rate for the first time since 2023 by 25 basis points to 2.25% and simultaneously revised its inflation forecast upward to 3.0% for 2026. The latest release confirms this logic. Market expectations are already pricing in a second hike in July—and a core inflation rate of 2.5% alongside accelerating services strengthens rather than weakens this scenario.