LONDON May 31 Reuters European shares fell on Tuesday and Wall Street was tipped to start weaker as surging oil prices fanned fears of further acceleration in global inflation that would keep the U.S. Federal Reserve and other central banks raising interest rates.

Markets looked past signs that China39;s economic pain might be abating amid easing COVID19 curbs and focused instead on the inflation outlook. Euro zone inflation hit a record high 8.1 in May, a day after German price growth accelerated to 8.7. Inflation was last this high during the 197374 oil shocks.

Brent crude futures dashed to twomonth highs above 123 a barrel and could rise further, analysts warn, citing Europe39;s decision to slash Russian oil imports, high U.S. summer demand and the easing of Chinese lockdowns at a time of tight global crude supply.

It all depends on inflation now, said Francois Savary, CIO of Prime Partners, a wealth manager in Geneva.

He said stock markets were not out of the woods despite a rebound from midmonth troughs. That rebound was spurred by perceptions that inflation may have peaked and a pullback in Fed rate hike expectations.

What happens to markets depends on whether we see some normalisation in inflation in the second half of the year, Savary said.

The German inflation data strengthened the case for an outsized European Central Bank rate hike in July and sent shortdated German yields to the highest in more than a decade.

Highly indebted Italy saw 10year yields…