Inflation in France, Italy, and Spain has increased, providing further justification for the European Central Bank's first interest rate hike since 2023.

Data released on Friday shows that France's consumer price index rose 2.8% year-on-year in May, slightly below market expectations, driven by soaring energy costs due to the war. Spain's index rose 3.6% year-on-year, while Italy's rose 3.3%, both in line with expectations.

The concentrated release of inflation data from major eurozone economies will help ECB officials assess the extent to which Middle East conflicts are pushing up inflation and whether a policy response is necessary.

German bonds edged higher, with the 10-year government bond yield falling 1 basis point to 2.95%. The euro fell 0.2% against the U.S. dollar to 1.1629.

Inflation rates in these countries remain significantly above the ECB's 2% target. The overall eurozone inflation data to be released next week is expected to rise further, surpassing the 3% level recorded in April.

Since the U.S. military action against Iran three months ago, ECB policymakers—from hawkish Executive Board member Isabel Schnabel to dovish chief economist Philip Lane—have been signaling that borrowing costs will likely need to be increased.