France and Spain’s Inflation Accelerates, Providing Data Support for ECB Hikes

Driven by the conflict in Iran which has pushed up energy costs, France saw a year-on-year increase of 2.8% in its consumer price index in May, while Spain experienced a 3.6% increase, both hitting highs since 2024. With inflation rearing its head again in the Eurozone, the European Central Bank's Policy Committee is deliberating whether interest rates need to be increased; the aforementioned data provides fresh support for hawkish positions.

In recent times, European Central Bank officials have noticeably leaned towards tightening. From the hawkish stance holder Schnabel (Isabel Schnabel) on the Executive Board to the dovish chief economist Lane (Philip Lane), several policymakers have publicly signaled that borrowing costs may need to be increased for the first time since 2023. The uniformity of officials' rhetoric to some extent reflects the market's common concerns about the inflation outlook.

Energy Shock Becomes the Main Driver of Inflation

The Trump administration's military actions against Iran have surpassed three months, with the continued geopolitical tensions in the Middle East suppressing expectations for global energy supply and driving up European energy prices, which then seep into the consumer end through cost transmission.

France's inflation increase is slightly lower than market expectations, while Spain's data aligns with expectations. The differences in data between the two countries may partly reflect differences in their energy structures and price transmission mechanisms, but the upward trend remains consistent.

Eurozone Data to be密集Announced, Will Set the Tone for Policy Path

Inflation data for other major economies in the Eurozone will be released intensively in the near term, with the market focusing on whether the European Central Bank can gather enough signals from them to judge the actual extent to which the Middle East conflicts affect prices, and thus decide the pace of policy response.

The core contradiction facing the European Central Bank at present is that if inflation continues to exceed expectations, the space to maintain interest rates unchanged will further narrow; while once it confirms a rate hike, it means that the two-year rate-cutting cycle would be reversed, and the impact on financial conditions in the Eurozone cannot be underestimated.