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Economy in Brief

For The ECB Inflation Fears Outweigh Investors' Worries
by Louise Curley April 15, 2008

While the central banks in the United States and Great Britain, have been lowering their key interest rates, the European Central Bank (ECB) has held firm at 4%, as can be seen in the first chart.

Concern over inflation is being fueled by today's releases of March inflation in Italy and France, both of which exceeded 3.5%. The year to year rate of increase in the Harmonized Index of Consumer Prices in Italy rose 3.57% and, in France, 3.53%. Inflation in March for Germany was released earlier and it was 3.2%. Inflation rates for France, Italy and Germany are shown in the second chart, where the sharp run up in inflation since last September is apparent.

Institutional investors and analysts in the ZEW survey are still relatively comfortable with the present economic conditions--the excess of optimists over pessimists rose slightly in April to 33.2%. They have, however, become much more cautious about the next six months. The excess of pessimists over optimists regarding the next six months rose from 32.0% to 40.7%. This compares with the largest excess of pessimists of 62.2% in December, 1992. The third chart shows percent balances for current and expected conditions since the beginning of the series.

INFLATION AND CONFIDENCE Mar 08 Feb 08 Mar 07 M/M Chg Y/Y 2007 2006 2005
Inflation Y/Y % Chg in HICP
Italy 3.57 3.13 2.07 0.44 1.50 2.04 2.22 2.21
France 3.53 23.19 1.23 0.34 1.30 1.61 1.91 1.90
Germany 3.20 2.91 1.98 0.29 1.22 2.28 1.78 1.92
ZEW(% Balance) Apr 08 Mar  08  Apr  07  M/M Chg  Y/Y Chg  2007 2006 2005
Current Economic Conditions 33.2 32.1 70.6 1.1 -43.7 75.9 18.3 -61.8
Expectations Next 6 Months -40.7 -32.0 16.5 -8.7 -57.2 -3.0 22.3 34.8
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