The European Central Bank president recently warned that his bank's rates could go up. ECB President Jean-Claude Trichet took a hawkish tone on inflation after the bank left its key rate unchanged at 4%. He said the ECB was in a state of "heightened alertness" over inflation, according to news reports. Meanwhile, the Bank of England left its main interest rate at 5%. Both banks report price levels higher than they like, and Trichet, citing the ECB mandate to fight inflation, has stayed away from rate cuts even as the U.S. Fed lowered rates to boost the shaky U.S. economy. The European Union's statistical agency Eurostat estimates that inflation reached 3.6% in March and May this year, far above the ECB's stated goal of below 2%. Also, the Bank of England's May quarterly inflation study reported that inflation could spike as high as 3.7% this year. This December, I will expect to see more of our Euorpean friends come to Houston to buy discounted clothing and electronic Christmas presents to take home, barring a prohibitive raise in airline fares.
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