(Bloomberg) -- French inflation eased to its lowest level in a year, though Italy overshot analyst expectations, underlining the challenge for the European Central Bank as it nears the end of its unprecedented campaign of interest-rate hikes.

Consumer prices in France rose by 6% from a year ago in May — down from 6.9% in April and way below the 6.4% gain economists surveyed by Bloomberg had predicted, data Wednesday showed.

In Italy, inflation moderated to 8.1% from 8.7% but was significantly above the 7.5% median estimate in a separate poll.

The data follow a larger-than-expected dip in Spanish price gains and are part of a raft of releases from the region’s top economies. Germany will publish its reading for this month later Wednesday, with early regional figures pointing to a similar retreat in price gains. The 20-nation euro area will report numbers on Thursday.

Money-market traders trimmed rate bets and are no longer fully pricing another 50 basis points of hikes this year. German bonds rallied, with two- and five-year yields falling as much as 10 basis points. The euro held losses, trading near a two-month low of $1.0673 touched Tuesday.

What Bloomberg Economics Says...

“Lower-than-expected readings for France and Spain add modest downside risks to our forecast for euro-area inflation. We forecast that headline inflation will decline to 6.2% in May from 7.0% in April and core to 5.4% from 5.6%.”

—Maeva Cousin, senior euro-area economist. Click here for full REACT 

While the retreats in headline inflation will be welcomed by the ECB, Italy’s above-estimate reading and signs that core price pressures exlcuding energy and food costs remain elevated mean policymakers can’t relax.

“I could not say that the victory is there so far,” ECB Vice President Luis de Guindos said in Frankfurt. “I think that we are on the correct trajectory and we have to look very carefully at the evolution of core inflation.”

His ECB colleague Madis Muller said there’ll probably be more than one additional quarter-point hike, warning that underlying inflation “unfortunately shows no signs of slowing yet.”

In France, price growth slowed across sectors, particularly in energy. Manufactured goods and services inflation, which are keenly watched by ECB officials, also moderated to 4.1% and 3%, according to the Insee statistics agency.

Bank of France Governor Francois Villeroy de Galhau said last week that core inflation is “showing persistence,” and services will likely become the dominant force driving prices.

Speaking after Wednesday’s data, he described the composition of price growth as encouraging, saying the downward shift means it is “probable we’ve passed the peak.”

“Part of this can doubtless be attributed to the first effects of monetary-policy transmission,” Villeroy said.

The rising cost of living, meanwhile, is proving trickier for President Emmanuel Macron to alleviate than the spike in energy costs. As part of a campaign to narrow profit margins, the Finance Ministry has pressured large food companies to renegotiate prices and supermarkets.

“Retailers have stuck to their commitments,” Finance Minister Bruno Le Maire said Wednesday. “Industrial food manufacturers, who committed in my office to return to the table for commercial negotiations to translate this decrease in inflation into prices on supermarket shelves, must respect their commitments.”

In a separate release, Insee said consumer spending fell 1% in April as households cut back on food and energy outlays. Economists polled by Bloomberg had expected a 0.3% increase.

--With assistance from Craig Stirling, Giovanni Salzano, Joel Rinneby, Ainhoa Goyeneche, James Regan, Ott Tammik, Jana Randow, Constantine Courcoulas and Alessandra Migliaccio.

(Updates with Italian inflation starting in first paragraph.)

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