FRANKFURT, May 31 Reuters Euro zone inflation rose in May, data showed on Friday, in a sign the European Central Bank still faces a slow and uncertain journey to rein in prices.

The biggerthanexpected increase in inflation was unlikely to stop the ECB from lowering borrowing costs from a record high next week, but may cement the case for a pause in July and a slower pace of interest rate reductions in the coming months.

Consumer prices in the 20 countries that share the euro rose by 2.6 year on year in May, inching away from the ECB39;s 2 goal after increases of 2.4 in the previous two months, according to Eurostat39;s flash estimate.

Economists polled by Reuters had anticipated a 2.5 increase although an upside surprise was likely after German, French and Spanish readings earlier.

More significantly, a closely watched measure of underlying inflation that excludes food, energy, alcohol and tobacco came in at 2.9 from 2.7 in April.

Prices in the services sector, which some policymakers have singled out as especially relevant because they reflect domestic demand, rebounded to 4.1 from 3.7.

This was likely to mirror largerthanexpected increases in wages in the first quarter of the year, which have boosted consumers39; battered disposable income after years of belowinflation pay hikes.

The ECB39;s biggest ever streak of rate hikes has helped bring down inflation from a whopping 10 in late 2022 and stabilised consumer expectations but it has also choked off credit….