The European Central Bank today reinforced the message that an interest rate rise is on the cards by releasing internal forecasts that put euro zone inflation above its two percent ceiling this and possibly next
year.
The semi-annual forecasts, which assume no change in interest rates and stable foreign exchange rates, were revised upwards by the ECB economists to a 2.1-2.5 per cent range for 2002 from a 1.1-2.1 per cent forecast six months ago.
Alarmingly, the ECB economists' inflation forecast for 2003 was revised upwards to between 1.3 and 2.5 per cent from their December forecast of 0.9-2.1 per cent.
The ECB says the forecasts form part of its decision making but do not represent the views of the central bank's policy making council.
The economists' forecasts for economic growth saw only minor changes, with the range for 2002 narrowing to 0.9-1.5 per cent compared with 0.7-1.7 per cent in the previous projections.
Growth is expected to accelerate to between 2.1 and 3.1 per cent next year from an original forecast of 2.0-3.0 per cent.
The June projections assume substantially higher oil prices than were assumed in December, though prices should decline slightly over the forecast period, the ECB said.