As widely expected, the European Central Bank today continued in rate hiking mode. From the Financial Times:
The European Central Bank on Thursday raised its main refinancing rate by a quarter of a point to 2.5 per cent, following up a previous rise in December, the bank’s first for five years.
The Prudent Investor has the details on the rationale provided by ECB president Jean-Claude Trichet, but the bottom line is that "risks to the outlook for price developments remain on the upside." According to the FT', this won't be the end of it:
Most economists expect eurozone rates to rise to 2.75 or 3 per cent by the end of 2006 as pipeline inflation pressures continue to build, against a backdrop of steadily improving economic data.
On the other side of the world, the sense grows that the Bank of Japan is not far behind. From Bloomberg:
Japan's consumer prices rose at the fastest pace since 1998 in January, supporting the central bank's case to end a deflation-fighting policy as soon as next week.
Core consumer prices, which exclude fresh food, increased 0.5 percent from a year earlier after 0.1 percent gains in November and December, the statistics bureau said today in Tokyo...
The report may persuade the Bank of Japan to start reducing the amount of cash it pumps into the economy at a meeting next week, a precursor to lifting interest rates from near zero. Prime Minister Junichiro Koizumi said today he's starting to see signs that deflation is ending, showing government support for the central bank to change the policy.
It looks like the BoJ may take a page from the Fed's communication manual...
Bank of Japan officials have said they plan to present guidance to signal the bank's policy direction and stabilize interest rate expectations when it announces a change to the policy.
... but the scent of inflation targeting, of sorts, is also in the air. From Forbes:
The Bank of Japan is considering setting a 'reference rate' on inflation to guide markets on its monetary policy intentions, Jiji Press and other media reported.
The central bank has been wary of introducing a formal inflation target but is mulling a softer goal to improve transparency after it returns to a conventional interest rate policy, the reports said.
The reference rate would be the rate of consumer price inflation deemed desirable to help achieve sustainable economic growth, Jiji quoted sources that weren't identified as saying.
More, no doubt, to come.
UPDATE: This, from Bloomberg, can only solidify sentiment that more rate hikes from the ECB are likely:
The economy of the dozen euro nations will grow at the fastest pace since 2000 in the first three quarters of this year, the European Commission said.
Gross domestic product compared with the previous three month period will expand around 0.7 percent in the first, second and third quarters of this year, said the commission today. Growth hasn't exceeded 0.7 percent for three consecutive quarters since the period through June 2000.
UPDATE AGAIN: Euractiv has lots of links to articles covering the ECB decision.