Given the monetary developments in the Euro area the ECB is most likely to raise the leading overnight lending rate another 25 basis points to 2.5% on Thursday. On Monday the ECB released money supply figures for January, showing an acceleration of M3 to an annual rate of 7.6% (7.3%) whereas Eurostat reported higher inflation figures. According to the Eurostat release Euro area consumer prices rose at an annualized rate of 2.4% (2.2%) in January.
Inflation was highest in housing and transport where prices rose 5.5% year-on-year.
Both key indicators for European monetary policy remain solidly above their target rates which are set at 2% for inflation and 4% for money supply.
Eurozone money supply M1 - cash and checking accounts - slowed to an annual growth rate of 10.2% (11.3%) but is still out of control. The fast growth in cash may point to an increase of the shadow economy where the preferred mode of payment is cash.
Money supply woes reach across the Atlantic though. The Capital Spectator highlights the growing divergence between US M2 and M3 figures, with latter zooming away into heights not seen in years. This comes at time when US consumers are starting to pay back the mountain of consumer credit they have piled up in this millennium, data from the Fed St. Louis shows. This means someone else is spending like mad, probably the government. With the growing share of government in the overall economy we could see positive US growth rates for a little while longer - as long as foreigners are willing to finance Bush's spending spree.
So I am left with only one positive statistic. According to a CBS poll George W. Bush's approval ratings have fallen to an all-time low of 34%, after 42% a month earlier, Reuters reported already on Monday.
UPDATE: There is more new European data. A first flash estimate by Eurostat sees the CPI receding to 2.3% in February. Unemployment was stable at 8.3% in January vs. December but is lower than a year ago, when the rate stood at 8.8%.
All in all indicators give the ECB a lot of fundamental reasons, including energy prices, for a rate hike were it not for the continuing anemic growth in the Eurozone. As growth is not on the ECB's agenda but only fighting inflation a hike appears the most appropriate step at the most appropriate point of time.
The dollar seems to discount a Euro rate hike too, weakening overnight to 1.1940 Euros.