What's going on?

Eurozone inflation rose to its most rapid rate since late 2018 last month, with factory bottlenecks partly to blame for prices popping across the continent.

What does this mean?

The prices of goods and services in Europe�s 19 solely euro-spending states increased by a higher-than-expected 2% in May compared to a year before. And while rising energy prices had a big hand in that, the region�s factories may be playing an even more significant part.

Manufacturers are struggling to keep up with rising demand as European economies reopen: inventories of finished goods fell at the fastest rate since 2009 last month. But eurozone factories took advantage of this short supply to pass on higher input costs to customers: according to one survey, May saw them hike their prices by the most in more than 18 years.

Why should I care?

For markets: Inflation needs to chill.
This is the first time inflation has breached the European Central Bank�s (ECB�s) just-under-2% target since October 2018. That�s likely to fuel fears among some investors that the ECB will be forced to unwind pandemic-induced economic support measures � such as ultra-low interest rates and quantitative easing � sooner than expected. The central bank, however, is following its US counterpart in claiming that this uptick in inflation is only temporary.

The bigger picture: Germans are industrious.
Activity is increasing at European factories as they attempt to get back up to speed, with a key measure of manufacturing growth hitting an all-time record in May. That bodes well for industrial powerhouses such as Germany � and according to new data out Tuesday, German unemployment decreased by more than expected last month. While the rate remains higher than it was pre-pandemic, it�s still lower than anywhere else in Europe.