Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: yard_man who wrote (165731)	5/14/2002 2:29:17 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 436258

ECB Watch: April CPI Data Raise Summer Rate Hike Chances By Charlene Lee Of DOW JONES NEWSWIRES FRANKFURT (Dow Jones)--European Central Bank officials are likely to be squirming after Tuesday's batch of April inflation data from several euro-zone countries. Almost all of the reports were disappointing, leaving the likelihood that the final estimate for April euro-zone inflation will be revised up to 2.3% or 2.4% from a preliminary 2.2%. That would leave the deceleration from March's already high 2.5% a marginal one at best and make it less likely that euro-zone inflation this year will average below the ECB's targeted 2% ceiling. The inflation data, analysts said, have markedly raised the chances that the ECB will embark on a tightening cycle before its summer recess in August and ahead of the U.S. Federal Reserve. While many still think the ECB will wait at least until September before nudging the 3.25% minimum bid rate higher, the odds are drawing closer to even that the ECB could make its move sooner. "I think they have to be worried," said Jeremy Hawkins, chief European economist at Bank of America. And with German industrial workers agitating for a substantial wage increase this year, the stubbornly high inflation rates are "coming at just about the worst possible time," he added. The biggest disappointment by far comes from Spain, where the consumer price index leaped 1.4% in April from the preceding month. That left the annual rate at 3.6%, up from March's 3.1% and above expectations for 3.2%. While a sharp rise in oil prices this year has certainly played a big role in keeping inflation above 2% throughout most of the euro-zone, they aren't the only factor. Core inflation in Spain, which strips out the more volatile energy and food prices, actually outpaced the headline rate, rising at 3.9% year-on-year. "The core numbers have been awful," noted Ken Wattret, chief euroland market economist at BNP Paribas. "Until we had today's figures, it looked as though the core figures were about to improve." Window For Doing Nothing May Be Shutting While the Spanish data were the most shocking to the markets, French and Dutch inflation numbers were no less disappointing. France, which in recent years has been one of the best inflation performers among the big euro-zone economies, reported a 2.0% rise in its CPI from a year earlier, above expectations for a 1.9% rate. French core inflation was another letdown at 2.1%, with inflation in the services sector remaining at March's stubbornly high 2.6%. Like Spain, the Netherlands also reported an annual inflation rate of 3.6% in April, unchanged from March. A retreat in April inflation to 3.3% had been anticipated. Economists reckon that another month or two of higher-than-expected numbers like these and euro-zone inflation will probably end up averaging above the 2% targeted ceiling in 2002 - for the third year running. That, they noted, puts the ECB in a difficult position of having to reinforce its credibility by raising interest rates sooner than policymakers would like. "Even though the rebound in activity in the euro zone does not seem strong enough to justify an ECB rate hike in the short term, these price figures could force the ECB to act to avoid a loss of credibility on its anti-inflationary policy," wrote Florence Beranger, euro-zone economist at CDC IXIS Capital Markets, in a research note. Like other economists, Beranger believes the outcome of the ongoing wage dispute in Germany may be the key to how soon the ECB tightens. "What the ECB is more worried about is, of course, wage negotiations, especially in Germany," said Commerzbank senior economist Michael Schubert. Germany's influential IG Metall labor union has already launched the most widespread series of industrial strikes seen in Germany in seven years, with union leaders indicating that workers won't settle for any less than a 4% wage hike this year. The bigger fear for the ECB is unions using the disappointing inflation rates as leverage for even bigger wage increases - the so-called "second-round" effect. Despite hawkish sounding remarks recently from both ECB President Wim Duisenberg and the editorial of the May bulletin, economists believe the ECB still wants to buy as much time as possible, especially with economic recovery still tentative. Also, ECB officials are likely to wait for the outcome of the German wage talks, along with any further appreciation of the euro and a possible softening in oil prices. "They want to buy some time," noted Wattret at BNP Paribas. However, "the window for doing nothing is shutting by the month," he added.