• Euro zone inflation hit 8.1% in May, exceeding expectations and marking a seventh consecutive record high for annual consumer price increases across the bloc.
• Shares of Dutch specialty chemicals company DSM surged after it announced a cash and shares merger deal with Swiss peer Firmenich.

LONDON — European stocks closed lower on Tuesday after hot inflation readings reignited concerns about the pace of monetary tightening from central banks.

The pan-European Stoxx 600 had dropped 0.8% by the close, with retail stocks shedding 1.7% to lead losses while oil and gas stocks added 0.3% on the back of spiking oil prices. For the month of May, the index closed down 0.85%.

Euro zone inflation hit an annual 8.1% in May, exceeding expectations and marking a seventh consecutive record high. The record annual consumer price increase was driven by soaring energy costs, which hit 39.2% (up from 37.5% in April) and a 7.5% increase in food, alcohol and tobacco prices (up from 6.3%).

Data on Monday also showed that German EU-harmonized inflation came in at an annual 8.7% in May, significantly outstripping analyst expectations of 8.0% in a Reuters poll and marking a sharp incline from the 7.8% seen in April.

French inflation also surpassed expectations in May to a record of 5.8%, up from 5.4% in April, preliminary data showed on Tuesday.

Investors were watching the data closely for indications as to the speed and scale of interest rate hikes that may be required from the European Central Bank from July onward.

Corporate deal flurry

Shares of Dutch specialty chemicals company DSM gained 8% after it announced a cash and shares merger deal with Swiss peer Firmenich.

At the top of the Stoxx 600, German chemicals firm Lanxess jumped more than 11% after announcing a joint venture with private equity firm Advent to buy DSM's engineering business for round 3.7 billion euros ($3.99 billion).

Unilever shares climbed 8.9% after the British consumer goods giant named American activist investor Nelson Peltz to its board.

At the bottom of the European blue chip index, B&M European Value Retail shares plunged more than 14% after the Luxembourg-based convenience company reported flat results for fiscal 2022 and warned of markdowns during the current financial year.

Global markets are also reacting to another jump in oil prices after EU leaders agreed late on Monday to ban 90% of Russian crude by the end of the year, as part of the bloc's sixth sanctions package against Moscow since its invasion of Ukraine.

Russia vowed to find other importers for its crude shortly after the embargo was announced.

Meanwhile, U.S. stocks fell Tuesday, as momentum on Wall Street faded following the S&P 500′s best week since 2020.

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