Easing inflation in key eurozone economies such as France and Spain is "positive" news, a senior European Central Bank official said on Wednesday, but stressed it was too soon to declare victory.
Consumer price growth slowed to 5.1 per cent year-on-year in France in May, down from 5.9 per cent a month earlier, preliminary figures showed on Wednesday.
Spanish inflation meanwhile declined to 3.2 per cent in May mainly thanks to lower fuel costs, after hitting 4.1 per cent in April, according to figures released on Tuesday.
"The data that we have received yesterday and today is positive, it's a decline in headline inflation," ECB vice-president Luis de Guindos told reporters. "But I would not say that the victory is there," he said at the launch of the ECB's twice-yearly report on financial stability. "We are on a correct trajectory and we have to look very carefully at the evolution of core inflation" which excludes volatile food and energy prices, he added.
German inflation fell sharply on lower energy costs, official data showed on Wednesday, mirroring slowing price growth in France and Spain. The annual inflation rate in Europe's biggest economy eased to 6.1 per cent, down from 7.2 per cent in April, federal statistics office Destsatis said in preliminary figures.
Other data on Wednesday showed price growth in Italy slowing to 7.6 per cent from 8.2 per cent in April – still well above the ECB's two per cent target.
The current price "correction" in real estate markets "could turn disorderly if higher mortgage rates increasingly reduced demand" the [ECB Financial Stability Review] report warned
Mortgage demand falling
The ECB has hiked interest rates by an unprecedented 3.75 percentage points since last July in an attempt to bring down rapidly rising consumer prices.
In its Financial Stability Review, published on Wednesday, the ECB warned that the higher rates were weighing on consumers and companies.
Although economic conditions have "improved slightly" and energy prices have fallen, higher borrowing costs and stricter credit conditions "are testing the resilience" of euro area firms and households, the report said.
Demand for new loans, especially mortgages, declined sharply in the first quarter of 2023, it found.
The current price "correction" in real estate markets "could turn disorderly if higher mortgage rates increasingly reduced demand", the report warned.
Financial markets and investment funds were also "vulnerable to disorderly adjustments", it said, "particularly in the event of renewed recession fears".
"The outlook for euro area financial stability remains fragile," the report said.
The ECB is expected to announce another rate hike in June.