German inflation was higher than forecast this month, even as Spain became the first major eurozone economy to beat the European Central Bank’s 2 per cent target in almost two years.

The divergence between Germany’s 6.8 per cent rate for June and the 1.6 per cent recorded by Spain highlights the dilemma faced by the ECB, which is focused on core inflation, which excludes volatile energy and food prices.

“June’s inflation figures from Germany won’t change the ECB’s hawkish resolve, even if core inflation edges down in other countries,” said Franziska Palmas, an economist at research group Capital Economics, adding that only “repeated falls” in core inflation would ease rate-setters’ worries.

The rise in German consumer prices, which will put upward pressure on eurozone inflation data due out on Friday, compared with 6.3 per cent the previous month and the 6.7 per cent forecast for June in a Reuters economists’ poll.

It was partly caused by a surge in transport prices after Berlin reduced subsidies on tickets for buses and trains.

The federal statistical office said services prices rose at a new record rate of 5.3 per cent in June, while energy inflation increased slightly to 3 per cent and food inflation slowed to 13.7 per cent.

German core inflation rose to 5.8 per cent, up from 5.4 per cent in May.

While eurozone headline inflation is expected to keep falling, the ECB is concerned about tight job markets and rising wages, particularly in the labour-intensive services sector. It says it will keep raising rates until such underlying price pressures are clearly dropping.

In Friday’s figures, eurozone annual inflation is expected to drop to 5.6 per cent in June, from 6.1 per cent last month — down from a peak of 10.6 per cent in October as energy and food prices continue to slow.

But core inflation is expected to rise to 5.5 per cent, up from 5.3 per cent in May.

By contrast with the figures from Germany, traditionally one of Europe’s strongest advocates of sound money, Spanish inflation fell significantly from its already relatively low rate of 2.9 per cent the previous month.

Slower increases in fuel, electricity and food and drinks prices contributed to the drop, the country’s statistics institute said.

The economy ministry in Madrid noted that the country was “the first big economy in the eurozone to reduce inflation below 2 per cent” since Russia’s full-scale invasion of Ukraine last year sparked a surge in food and fuel prices.

ECB policymakers hope the decline in Spanish inflation is an early indicator of what will happen in the rest of the region, especially as consumer prices in Spain were faster to rise than many other countries.

However, Spanish core inflation was 5.9 per cent in June, down only slightly from 6.1 per cent in May.

Spain’s prime minister Pedro Sánchez, who has called a snap general election for next month, has sought to take credit for his country’s relatively low inflation. He has linked it to government fuel subsidies and a policy that cut a link between domestic electricity prices and the gas price elsewhere in Europe.

But Sánchez’s defeat in local and regional polls in May — the trigger for the snap election — suggested his economic message had not resonated with voters.

In Italy, annual inflation in June was 6.7 per cent, down from 8 per cent in May. France will publish consumer price figures on Friday.

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