Euro zone inflation higher than expected in May

BRUSSELS (Reuters) - Euro zone inflation was higher than expected in May, data showed on Tuesday, as consumer prices started rising again after five months of falls and stagnation despite a continued strong drag on the index from cheaper energy.

The European Union's statistics office Eurostat said consumer prices in the 19 countries sharing the euro rose 0.3 percent year-on-year last month after a flat reading in April, beating market expectations of a 0.2 percent increase.

The Eurostat estimate does not contain monthly data, but the annual data showed that more expensive unprocessed food and services had the biggest upward impact on the overall index.

Excluding the volatile energy prices, which were 5 percent lower in May than 12 months earlier, consumer prices rose 1.0 percent.

Excluding energy and unprocessed food -- or what the European Central Bank calls core inflation -- prices were up 0.9 percent, accelerating from 0.7 percent in April.

The inflation rebound could mean that the ECB's sovereign bond buying program, aimed at injecting more cash into the economy to prevent deflation and started in March, has brought rapid results.

But prices at factory gates in April, however, fell 0.1 percent month-on-month for a 2.2 percent year-on-year decline, weaker than market expectations of a 0.1 percent monthly rise and a 2.0 percent annual fall.

Producer prices are an indication of inflationary pressure early in the pipeline, because unless their changes are absorbed by retailers via profit margins, they tend to translate into consumer prices.

(Reporting By Jan Strupczewski; editing by Philip Blenkinsop)