Analysis:The Fed's sustained campaign of 17 successive interest rate hikes has arrested inflation. This should ease pressure on ECB rates, writes Marc Coleman, Economics Editor

If yesterday's US inflation data is a sign of future trends, the worst could be over for American borrowers in terms of the rapid pace of interest rate increases they have suffered in recent years. The news could also spell relief for Irish borrowers - or at least less pain to come.

A cursory glance at recent US monetary policy would cause any Irish borrower to think twice before complaining about the European Central Bank (ECB).

Compared with the US Federal Reserve, the ECB is a monetary wimp. The ECB has raised rates by one percentage point in just under a year. But between June 2004 and June of this year, American borrowers had to suffer an increase of four and one-quarter percentage points.

In its first four meetings this year alone, the Fed's co-called Open Market Committee (FOMC) raised rates from 4.25 per cent to 5.25 per cent. The phrase "better keep a hold of nurse, for fear of finding something worse" comes to mind. But as the FOMC continued raising rates this year, the tone of its warnings on inflation became increasingly muted. January's FOMC statement spoke of growth being "solid" and, by March, it described growth as having "rebounded strongly". But the May statement said that growth was "likely to moderate" and the subsequent June statement said that "growth is moderating".

Last week, an unbroken run of 17 successive rate rises came to an end as the Fed held rates at their new high of 5.25 per cent.

The post 9/11 panic had prompted the Fed to lower rates aggressively to a low of 1 per cent, where they remained until mid-June. This reflected accelerating US inflation which rose from 1.6 per cent in 2002 to over 4 per cent this year.

This week, the inflation tide appeared to turn. According to data released on Tuesday, producer price inflation - one of several indicators used to predict future inflation - turned negative. Yesterday, the US labour department confirmed the rate of monthly consumer price inflation fell to 0.2 per cent in July after running at 0.3 per cent for each of the preceding four months. That slowdown might not appear much.

So-called "core inflation", which excludes the impact of food and energy prices, is rising by 2.7 per cent, slightly above what the Fed considers comfortable.

But Fed forecasters - who last week correctly anticipated it - are banking the momentum of slowing inflation is now strong enough to bring the annual rate of inflation back down towards 2 per cent without requiring any rate increase other than perhaps one further quarter point.

That further one per cent increase will hang on the damage that recent oil price increases will do to US inflation.

Not being in perfect synch with the US economy, the euro zone is still gathering momentum as the US cycle is peaking. In the next 12 months, euro-zone rates will certainly rise by more than 0.25 per cent.

But in two or three months' time, it is likely to be clear Fed rates have peaked. The dollar will weaken, dampening inflationary pressure in the euro zone and thereby reducing the extent by which the ECB has to raise rates by 0.25 per cent. A small mercy, but a welcome one.