It's beginning to look like a long hot summer for the European Central Bank on the issue of inflation. As the bank continues to stick to its target of 0-2 per cent, the EU-harmonised rate for May jumped sharply to 3.4 per cent.

Now the ECB has been reduced to stating that its target is medium-term as analysts suggest the best it can hope for in the coming months is a figure retreating towards the 3 per cent threshold. Before now, 3 per cent was seen as a psychological support level whose breaching would be an important negative signal to the market.

Coming alongside growth fears for Germany and supportive comments from US Federal Reserve chairman Alan Greenspan about the prospects for growth and inflation in the US economy, the outlook is not encouraging.

dcoyle@irish-times.ie