As expected, the European Central Bank has kept the cost of borrowing unchanged at 4%. ECB President Jean-Claude Trichet and the policymakers on the bank’s Governing Council continue to focus on the risk of high inflation over concerns about slow euro zone economic growth.
In remarks that some economists saw as hawkish, Trichet said: “It’s absolutely clear the level of uncertainty resulting from the turmoil in financial markets remains high. Against this background, we emphasise that the firm anchoring of medium to longer term inflation expectations is of the highest priority to the governing council.”
Annual inflation in the euro zone eased to three point 3.3% in April, down from March’s 3.6%. Euro zone growth is forecast at just one point seven per cent this year.
Oil prices are driving inflation, with US light crude close to $124 a barrel. Oil shows no sign of slowing down, hitting new records virtually every day, and New York trader Anthony Grisanti said: “Looking into the future the news is bad. I don’t really see anything that’s going to hold this market back from going a lot higher from where we are right now, and by a lot higher I mean $150, I’m not really talking about $200 at this point.”
Britain also has an inflation problem, but the Bank of England has kept UK interest rates unchanged at 5%; however analysts say a slowing economy will force it to cut borrowing costs next month. House prices there are falling and consumer confidence is crumbling with the end of the cheap loans and easy lending of recent years.