Highlights
As expected by virtually all analysts, the European Central Bank increased its key policy interest rate by 25 basis points to 4.25 percent. The spread between U.S. and EMU interest rates is now 2.25 percent. The latest flash reading for the harmonized index of consumer prices showed that inflation soared by 4 percent in June, the highest rate since statistics began in 1997. That means that inflation is about double the ECB's inflation target of below but close to 2 percent. And producer prices soared by 7.1 percent on the year in May. In an interview recently, ECB president Jean Claude Trichet said that there is a risk of inflation exploding if central banks did not act decisively.

In his last press conference after the ECB's June meeting, Trichet shocked analysts with his hawkish language. He said the bank may raise its key rate by a quarter-point to 4.25 percent at its July 3 meeting to contain inflation even as economic growth slows. This was immediately interpreted by the financial markets that there was a series of rate increases on the near horizon. Subsequently, members of the governing council have attempted to smooth the remarks to mean that there would be only one rate increase. Since then, soaring food and energy prices pushed eurozone inflation to 4 percent. Policy makers are concerned that workers will demand wage increases to compensate for the higher cost of living, which would entrench faster inflation. The ECB's thinking is that even though higher rates may hurt growth in the short term, the longer-term economic fallout would be much worse if it doesn't act now.

Still, for some eurozone economies, a rate increase is unwelcome. That is the downside of a currency union, but the ECB sets interest rates for the eurozone as a whole. The right monetary policy stance is not always the stance that makes life easy in the short term. Analysts will be parsing Mr Trichet's comments at his post-meeting press conference for clues to future monetary policy even though Mr Trichet has said that the governing council does not pre-commit.

2008 Release Schedule

Released On: 1/10 2/7 3/6 4/10 5/8 6/5 7/3 8/7 9/4 10/2 11/6 12/4