The European Central Bank (ECB) stepped up its anti-inflationary warnings today and strongly signalled that investors are right to expect another interest rate increase in June.
The ECB kept its official rate on hold at 2.5 per cent as expected, but ECB President Jean-Claude Trichet said some of the risks to price stability have increased due to a resurgence in high oil prices, which requires "particular vigilance".
He said: "The Governing Council will exercise strong vigilance in order to ensure that risks to price stability over the medium term do not materialise," in a monetary policy statement after the rate decision.
Further credit tightening is warranted if the euro zone economy continues along its trend path of about 2 per cent annual GDP growth, he said.
Asked whether a June rate hike was to be expected, Mr Trichet said that this should not be excluded, and that "you always got me right" on rate expectations.
Mr Trichet refrained from giving much guidance on where rates would go after June.
But he expressed growing confidence about the economic prospects for the euro zone and renewed his determination to tackle inflation, which reached 2.4 per cent in March, well above the ECB's goal of just below 2 per cent.
Oil costs have risen about $4 a barrel, but otherwise most news has been positive for growth.
The main euro zone business sentiment indicator hit a five-year high, and Belgium gave a glimpse of first-quarter economic performance when growth reached its fastest pace in 18 months.
Euro zone purchasing managers' data out earlier today showed the service sector growing at its fastest pace for five years, coming on the heels of strong manufacturing data a day earlier. Sentiment surveys in the main euro zone countries also have pointed to accelerating growth in the 12-nation region.