The Economist "By Invitation" asks:
Economics: Should the ECB raise rates?: Last week, European Central Bank President Jean-Claude Trichet hinted that the ECB may increase interest rates within the next month, and other officials have suggested that as many as three rate increases could take place this year. The announcement came as new figures showed inflation continuing to move upward in January, due in part, but not entirely, to rising energy costs. Central bankers elsewhere, and in Britain especially, will be watching closely to see what the ECB does. Should the ECB begin tightening monetary policy now? If so, how should it go about it; how much tightening is necessary? If not, what course should the ECB navigate?
And Michael Heisse, amazingly, answers "yes":
Economics: Cautious European rate hikes are warranted: There are several factors warranting a rate hike. First of all, euro-area inflation has increased of late, largely owing to rising energy and commodity prices. For the ECB, it is crucial that the recent rise in inflation does not give rise to broad-based inflationary pressure.... Inflation rates are likely to stay above 2% in 2011, before moderating again. Ominously, industrial producer prices—which tend to act as an early indicator for consumer prices—accelerated in the course of 2010. The ECB’s monetary policy stance looks increasingly accommodative against the background of a marked pickup in economic activity, due partly to robust growth abroad, but also reflecting improved domestic growth dynamics.
Since the ECB aims at maintaining price stability over the medium term, it also takes into account longer-term risks to price stability emanating from destabilising financial and monetary trends. Accordingly, with renewed excesses bubbling up on the financial markets (commodity markets, capital flows to emerging markets), the markets need to be given a signal that speculative positions based on the assumption of “eternally” low money market rates are risky...
He thinks inflation is likely to fall back below 2% in 2011, and yet he is calling for interest rate increases now?