Spain's annual inflation rate hit a two-year high of 3% in January, preliminary figures showed today, piling on grim news for the sluggish, jobs-scarce economy.
Higher food, soft drink and electricity prices pushed up the cost of living, driving inflation up from a 2.9% rate in December, the National Statistics Institute said.
It was the highest inflation rate since October 2008 when prices climbed 3.6% annually, pushed up at the time by soaring oil prices.
Driven by food and energy costs, prices appear to be on the rise across large parts of Europe, putting pressure on the European Central Bank which meets in Frankfurt on Thursday to discuss interest rates.
While analysts expect the ECB to hold key rates steady this week, they say a rise in interest rates is possible later in the year if inflationary pressures increase further.
Higher interest rates raise the costs of credit and tend to slow economic activity, which could be a serious threat to economies such as Greece, Ireland, Portugal and Spain.
Spain is struggling with feeble economic growth, which is failing to generate enough jobs to cut the highest unemployment rate in the industrialised world - 20.33% at the end of 2010.
The Spanish economy, the European Union's fifth biggest, slumped into recession during the second half of 2008 as the global financial meltdown compounded the collapse of a labour-intensive construction boom.
It emerged with tepid growth of just 0.1% in the first quarter of 2010 and 0.2% in the second but then stalled with zero growth in the third.
Zapatero has said the fourth quarter will show positive growth which would pick up steam in 2011 but warned that job creation would be 'far from what we need and desire. It will be slow and progressive.'
Definitive inflation figures for January are due February 15.
