Middle East Conflict Disrupts Shipping, Spikes Global Costs and Insurance Premiums

Bank of England Governor Bailey sent a clearly dovish signal. He noted that given the current economic weakness, the central bank could tolerate inflation exceeding the 2% target for a period of time. This remark significantly lowered market expectations for a rate hike in June. However, Bailey also warned that once signs of second-round effects emerged, the central bank's tolerance for inflation would diminish accordingly.

The eurozone was facing a broad-based intensification of inflationary pressures. Specifically, the Consumer Price Index (CPI) in France and Spain rose 2.8% and 3.6% YoY in May, respectively, both hitting their highest levels since 2024. Meanwhile, Italy's inflation rate climbed to 3.3%, reaching its peak since 2023, while Germany's core inflation also accelerated to 2.5%. Against this backdrop, ECB Governing Council member Simkus noted that a rate hike in June was almost a foregone conclusion, and that further rate hikes would "very likely" be needed thereafter.

US Fed Vice Chair Bowman noted that it was still too early to judge the impact of the Middle East conflict on US inflation, and that temporary price shocks should be overlooked. However, Kansas City Fed President Schmid argued that it was difficult to continue viewing the current energy price shock as a "transitory" factor, and that officials needed to clearly express their willingness to take necessary measures to maintain price stability. The Fed's Kashkari stated that it was too early to determine whether rate hikes were needed, and that all possible policy options should be kept open. Fed official Paulsen said there had been no structural change in inflation.