New York Times International Business: With an Eye on Inflation, Europe Raises Rate Again By CARTER DOUGHERTY – December 8, 2006 The European Central Bank raised its benchmark interest rate by a quarter‐point on Thursday, its sixth such move in a year, and signaled more increases were likely next year as it sought to head off higher inflation. The bank’s president, Jean‐Claude Trichet, acknowledged that the economy of the 12‐country euro zone could be hurt again by higher energy prices. But he struck a sanguine note about growth, saying it would be steady into 2007 thanks to strong global expansion, renewed business investment and a pickup in household spending. After a year in which the bank carefully telegraphed its plans well in advance, including the increase on Thursday, Mr. Trichet refused to specify precisely when the bank might move next. But with a stern warning that it will act ’’in a firm and timely manner,’’ he left little doubt that the bank thought that higher rates would be needed to squelch inflation. ’’We are there to ensure price stability,’’ he said. ’’It is as simple as that. There is no ambiguity.’’ The bank’s move put its key rate at 3.5 percent. The Bank of England, also meeting on Thursday, left its benchmark rate unchanged at 5 percent. Mr. Trichet hinted that higher rates were likely next year once Europe weathered the shock of a sharply higher value‐added tax in Germany. When the German tax increases to 19 percent from 16 percent on Jan. 1, its largest one‐time increase ever, Mr. Trichet said the central bank would take time to digest economic data early in the year to assess its effect on growth. ’’What is unclear is exactly the impact that it will have,’’ he said. Still, Mr. Trichet’s mix of signals tilted decisively toward worries that inflation could rise if previous oil price increases make energy‐related products more ...
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