ECB and BOE Leave Rates Unchanged To Combat Inflation

Choosing to ignore the threat to growth, The European Central Bank left rates unchanged at a six-year high to stave off inflation. The Bank of England also left rates unchanged, despite a slump in the UK housing market that threatens growth in the region. ECB President Trichet said "inflation rates have risen significantly since Autumn. As we have said, inflation rates are expected to remain high for a rather protracted period of time before gradually declining again." The ECB and BOE appear to be taking an alternate view from the one expressed by US Federal Reserve Chairman Bernake, who advocates stimulating growth in the face of rather obvious inflationary pressures. Despite the Fed's recent habit of dousing the market with dollars with the appearance of any economic panic, whether real or imagined, a few talking heads are beginning to signal that the days of easy money may be behind us.
The IMF's deputy chief John Lipsky gave a speech where he declared that inflation is back. Giving credence to his moniker, Mr. Lipsky gave some serious lip to the Fed by claiming that the problem of surging energy and commodity prices was only compounded by low central bank interest rates and a falling dollar. Meanwhile, Fed Bank of Kansas City President Hoenig also gave a speech claiming that "serious" inflation pressures may compel the central bank to increase interest rates. What exactly is "serious" inflation? $4 a gallon gas? Skyrocketing food prices? It shouldn't be a surprise that Walmart and Costco reported higher sales than expected, while other retailers suffered. When the average American is trying to fight off inflation in his own household, he chooses to shop at a discounter.