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Spanish inflation unexpectedly quickened, denting hopes that the euro zone’s record price surge is peaking and piling more pressure on the European Central Bank to act.
The acceleration — to 8.5% in May from 8.3% the previous month under European Union harmonized standards — came as increases in fuel costs offset an easing in electricity prices that have driven inflation to records across the continent for months.
A gauge of underlying price gains — which strips out volatile items such as food and energy — quickened to 4.9%.
The numbers offer a first glimpse at trends in the 19-member euro region, with German data expected later Monday set to show inflation accelerated to 8.1% and Belgium also due to publish figures for May. An initial reading for the euro area will come Tuesday.
German benchmark borrowing costs extended their surge, sending the 10-year yield as much as 10 basis points higher to 1.07%, the highest since May 18. Money markets meanwhile raised wagers on the pace of ECB tightening, pricing 114 basis points of rate hikes by year-end, a jump of four basis points since Friday.
ECB officials are preparing to raise borrowing costs in July and end negative interest rates at the subsequent September decision. Reinforcing that plan, laid out last week by President Christine Lagarde, Chief Economist Philip Lane said in comments published Monday that quarter-point rate hikes at those two meetings are a “benchmark pace.”
With Spain seeing inflation approach a four-decade high in March, the government is hashing out the details of a plan to cap natural-gas prices for power generation — a move it says will immediately ease upward pressure on prices.
The Socialist-led coalition government has rolled out a swathe of measures to help consumers, including a subsidy on fuel prices at the pump, an increase in the minimum wage, direct grants to truck drivers and financial support for some farmers.
A separate European Commission survey showed Spanish inflation expectations retreated in May, while economic confidence increased, snapping two months of declines.
(Updates with EU economic confidence measure in final paragraph)
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