The European Central Bank raised its forecast for euro zone inflation in 2007 today but left its central prediction for 2008 unchanged, suggesting further monetary tightening to come.
ECB staff also upped their expectations for economic growth in the 13-nation region this year even as the central bank lifted interest rates to their highest level in nearly six years, to 4 per cent.
The midpoint of the staff inflation forecast range for 2007 was increased to 2 per cent from the 1.8 percent seen in March, marginally above the ECB's benchmark of below but close to 2 per cent.
Inflation was seen between 1.8 and 2.2 per cent this year, compared to 1.5 to 2.1 per cent three months ago.
New staff projections put the Harmonised Index of Consumer Inflation for next year in a 1.4 to 2.6 per cent range, giving a midpoint of 2 per cent, the same as in its March forecasts.
In his post-decision news conference, ECB President Jean-Claude Trichet said: "Risks to the outlook for price stability remains to the upside."
Growth in the 13-nation region was seen at 2.3 to 2.9 per cent this year, for a midpoint of 2.6 per cent and 1.8 to 2.8 per cent in 2008, for a 2.3 per cent midpoint.
Three months ago, ECB staff saw economic growth of about 2.5 per cent this year and 2.4 per cent in 2008.
The projections are based on market expectations of future interest rates, which had expected further ECB rate tightening later this year.