Is the euro area at risk of an inflation surge?

If you like a snapshot of a bang-on target, this is it: headline inflation in the euro area for May came in at 1.99 per cent on an annual basis, which gives a whole new meaning to close to, but below 2 per cent. The number itself, however, is entirely meaningless. 

As ever, the more important number is the core rate of inflation, which excludes energy, food and alcohol, and which shows no sign of breaking out its range of around 1 per cent. But even the core rate is subject to some noise. For example, the pandemic-related cut in the VAT rate during the second half of last year contributed to the steep fall in the core rate in August and the steep rise in January. But once you cut through these fluctuations, you would end with a relatively stable core inflation rate that stays mostly in the range of 0.8