Central banks target rising inflation with interest rate hikes

PARIS, Aug 1, 2006 (AFP) – Vigorous economic growth and signs of inflation are drawing central banks into the US Federal Reserve’s footsteps on the path towards higher interest rates, marking the end of cheap money. Almost the entire global economy is facing the same combination, and alarms have begun to ring among monetary authorities after a long period of weak inflation came to an end with higher prices for oil and other raw materials.

Consumer price increases in June averaged 3.3 percent in the 30 countries that belong to the Organisation for Economic Cooperation and Development, up from 2.1 percent 12 months earlier, OECD figures showed.

Meanwhile, economic activity worldwide continues to expand by about 5.0 percent per year, according to an estimate by the International Monetary Fund.

Those two factors could spell trouble for central bankers who keep a close watch on inflationary pressures and use interest rate levels either to stimulate activity or curb demand when economies begin to overheat.

Barring any surprises, on Thursday the European Central Bank (ECB) will raise its key lending rate for the fourth time in less than a year, to 3.0 percent.

Last week, Hungary, India, Slovakia and Tur