Rising inflation in the eurozone paves the way for interest rate hikes, but cooling core inflation reduces the urgency.

Data released by the European Union's statistics office on Thursday showed that due to the surge in energy costs, inflation in the eurozone surged further in April, providing more reason for the European Central Bank to raise interest rates, despite the mild underlying price growth data reducing the urgency for any action. The initial estimate for the annual inflation rate in the eurozone in April jumped from 2.6% the previous month to 3.0%, further exceeding the European Central Bank's target of 2%, with energy costs accounting for the majority of the increase. Meanwhile, core inflation, which excludes volatile food and energy prices, slowed down. Services inflation, which has been a major component of the price basket in recent years, decreased from 3.2% to 3.0%, while non-energy industrial goods, which have been the main drag on prices, increased to 0.8%. These data present a mixed bag for the European Central Bank meeting tonight, where the bank is likely to keep interest rates unchanged, although signaling a growing possibility of policy tightening. The high overall inflation data provides a reason for raising interest rates, but the underlying data suggest that the initial energy shock has not yet led to significant second-round effects.