They Said "Vigilance"!

Ever since Jean-Claude Trichet took over as ECB President from Wim Duisenberg, the ECB has had a somewhat ridiculous way of signaling future rate increases. Whenever they're planning to raise interest rates at the next meeting, they use the word "vigilance". When they're not planning to, they don't use it. And today Trichet actually said "vigilance", meaning that they will raise interest rates in September.

Some people had speculated that they would hold given the strength of the euro and stock market turmoil, but thew were proved wrong. My guess is that Sarkozy's attacks on the ECB if anything actually made Trichet more determined to raise interest rates to prove his independence from politicians in general and politicians from his country of origin (Trichet is French too) in particular. Trichet did in fact clash with Jacques Chirac when he was Bank of France president and the euro had yet to be introduced.

Still, the ECB is nevertheless too timid in his rate increases, as their far too gradual approach have been unable to stop money supply- and credit growth from rising above 10%, a clearly unsustainable rate. And euro area consumer price inflation should pick up significantly later this year for much the same reason as America's consumer price inflation will pick up.