(Bloomberg) -- Underlying inflation in the euro zone dipped by more than expected, though European Central Bank President Christine Lagarde said there’s “no clear evidence” that it’s peaked and pledged to lift interest rates further.

Consumer prices excluding items like fuel and food advanced by 5.3% from a year earlier in May — down from April’s 5.6% increase and less than the 5.5% median estimate in a Bloomberg survey of economists.

The headline gauge moderated more markedly, easing to 6.1% — its lowest level in more than a year — driven primarily by lower energy costs.

The data include big slowdowns for the 20-nation euro area’s top four economies and will be welcomed by politicians and monetary policymakers alike as the continent’s citizens struggle with a bruising cost-of-living crisis.

But the stubborn nature of the core measure means ECB officials plan to extend their unprecedented tightening campaign in two weeks’ time — despite Germany recently slipping into a recession and financial dangers still swirling.

The development of underlying price gains was “broadly seen as worrisome” at the ECB’s last meeting, on May 3-4, according to an account published Thursday.

“There is no clear evidence that underlying inflation has peaked,” Lagarde said in a speech following the latest reading. “We have made clear that we still have ground to cover to bring interest rates to sufficiently restrictive levels.”

That’s a similar view to Bloomberg Economics’s Maeva Cousin, who said that “it remains too early for the Governing Council to lower its guard — we expect base effects and statistical distortions to send core inflation up again through the summer and keep the ECB hiking at its next two meetings.”

Investors and economists widely predict another quarter-point move on June 15 and reckon there’ll probably be one more to round off the cycle, which has brought the deposit rate to 3.25% from below zero last July.

Thursday’s data didn’t shift rate bets in money markets, which had already digested the the national figures earlier in the week. Latvian central bank Governor Martins Kazaks said such wagers are “possibly not widely off the mark.”

Policymakers say bringing the growth in consumer prices back to the 2% target is essential to underpin economic expansion and financial stability, with both areas feeling the effects of rising rates.

Germany’s first recession since the pandemic underlined the vulnerability of the continent’s largest economy — even after it spent big to shield households from soaring energy bills following Russia’s invasion of Ukraine.

The ECB, meanwhile, warned this week that tighter policy leaves financial markets at risk of negative shocks and are testing the resilience of households, companies, governments and the real-estate sector.

The focus, though, remains on tackling prices, which involves not just raising borrowing costs but maintaining them once they reach their peak.

“Yes, headline inflation is coming down as we start to see the food and energy shocks dissipate,” Laura Cooper, Blackrock senior macro strategist for ishares EMEA, told Bloomberg Television earlier this week. 

“But clearly the services inflation, the core gauges, continue to show price persistence and that does suggest that the ECB will have to keep rates in restrictive territory for quite some time,” she said.

--With assistance from Joel Rinneby, Harumi Ichikura, Jana Randow, Tom Mackenzie, Constantine Courcoulas and Aaron Eglitis.

(Updates with account of last ECB meeting, Latvian central bank chief starting in sixth paragraph.)

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