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Economic Report: Canaria in the coalmine? Spanish inflation rate notches a 37-year high of 10.2%.

Global inflation worries got turbocharged on Wednesday, as Spain reported consumer prices soaring at the highest annual rate in 37 years. Alongside that came slightly softer-than-forecast German economic data.

The annual change in the Spanish preliminary estimate of consumer prices showed a rise of 10.2% in June, 1½ percentage points higher than in May, according to the Instituto National de Estadistica (INE). That increase was sharply higher than the 9.2% consensus forecast emerging from the estimates of economists surveyed by FactSet.

That preliminary estimate, up from the EU harmonized level of 8.5% in May, marks the highest Spanish inflation rate since April 1985. The price jump was driven by the costs of fuel, food and nonalcoholic beverages, as well as higher prices at hotels, cafés and restaurants, the INE said.

Germany on Wednesday reported a drop in harmonized consumer-price inflation to 8.2% in June from 8.7% in May, while the country measure fell to 7.6% from 7.9%. This was against expectations for a slight rise. Services inflation was a big driver of the drop, helped by short-term policy measures that cut public-transport ticket prices and fuel duties, noted Jessica Hinds, senior Europe economist at Capitol Economics.

While that should help keep German inflation under control until August, there is “little reason to think that underlying price pressures in Germany have eased,” she said, noting that “survey measures” indicate “price pressures remain intense.”

As for Spain, Hinds said underlying inflation measures “appear to be very strong,” and while the combination of Spanish and German inflation data suggest eurozone inflation will come in lower than forecast 8.6% — data are due Friday — the European Central Bank will likely stick to rate-hike plans.

Germany’s weighting in harmonized euro-area inflation readings means that ease in prices will weigh more than Spain’s nosebleed spike for June.

The Spanish government had only recently approved an emergency economic package of more than 9 billion euros ($9.5 billion) to try to stabilize economic pressures brought on by Russia’s invasion of Ukraine. Among the measures was a 20-cent subsidy for gasoline that was introduced in March and will now continue through the end of the year, along with one-off checks for poorer households and breaks on electricity bills.

While analyst worries about a euro-area recession have only increased, some investors, including the Ray Dalio hedge fund Bridgewater, are making big bets against the region. His fund recently amped up his bet against European stocks by some 500%.

“The price of energy in Europe is multiples higher than in the U.S. thanks to Europe’s higher trade exposure to Russia and Ukraine, and a heavier reliance on global energy imports. If this is a rerun of the 1970s energy crisis, then the terms-of-trade shock for the euro area is likely to have much more to go,” said currency analyst Jordan Rochester at Nomura.

Surging inflation comes as the ECB prepares to hike interest rates next month, with the central bank having already announced another increase for September. In a speech at the ECB forum in Sintra, Portugal, on Tuesday, Christine Lagarde, the ECB president, said the bank would keep options open to “stamp out” inflation if it gets out of control. She said for now gradual moves would be used, with plans for interest-rate hikes in July and September.

Lagarde was speaking at the Sintra forum again on Wednesday, alongside Federal Reserve Chairman Jerome Powell and Bank of England President Andrew Bailey.

See: Fed’s Powell sees possibility that inflation can come down quickly as demand subsides

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