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Finantial Times avisa:
Tension over ECB rate rises
By Mark Schieritz and Gerrit Wiesmann in Frankfurt
Published: March 4 2007 22:03 | Last updated: March 4 2007 22:03
Price increases in the eurozone will this year remain below the level the European Central Bank deems excessive for the first time since 2000, the ECB is expected to say on Thursday, raising tensions about its rate rises.
The estimate that annual inflation will hover at less than the 2 per cent level the ECB says is critical for price stability is likely to coincide with the announcement of a quarter-point rate rise, to 3.75 per cent, the seventh increase since late 2005.
As the central bank for the 13-member eurozone has continued raising rates, national governments have started to worry that a tight monetary policy might choke economic recovery in the single-currency bloc.
Admonitions by politicians that European inflation is in check have grown louder since the middle of February when the European Commission revised its inflation forecast for 2007 from 2.1 per cent to a more benign 1.8 per cent.
The ECB is now likely to follow suit, the FT Deutschland, the Financial Time’s sister paper, has learned. The central bank is set to lower its inflation forecast to about 1.8 per cent or 1.9 per cent, reflecting the recent decline in oil prices.
However, crucially for Jean-Claude Trichet, ECB president, who has to defend the likely rate rise, the central bank will be more sceptical about inflation next year, raising its 2008 outlook slightly.
The bank looks set to raise its growth forecasts for this year and next, suggesting it does not view some recent weak economic data as the start of a slide. It currently predicts growth at 2.2 per cent in 2007 and at 2.2 per cent in 2008.
Price rises in the single currency area ran at a moderate annual rate of 1.8 per cent in the first two months of this year but the ECB is worried that the decline in unemployment could lead to excessive wage increases.
In Germany, the powerful IG Metall metalworkers’ union is demanding a 6.5 per cent pay rise. This has spurred labour representatives from other sectors to enter talks with similar wage claims to make up for years of modest deals.
The Frankfurt-based central bank is also worried that strong money growth could spur inflation in the medium and long-term. Eurozone money supply rose faster in December and January than at any time in the past 17 years.
Mr Trichet has repeatedly downplayed the recent decline in inflation. He says the ECB is focusing on the medium-term outlook and that he expects price rises to speed up this year. Other bank governors have voiced the same fear.
The ECB’s forecasts for growth and inflation are based on the premise that the bank’s base lending-rate will rise by half a percentage point to 4 per cent during the course of the year. It last rose, to 3.5 per cent, in December.
Most economists expect a quarter-point rise on Thursday and many predict the ECB’s governing council will decide a similar increase in May, June or July.
A few observers even see rates hitting 4.25 per cent in the latter half of the year.