Risk of autumn hike in interest rates

THE jump in euro area inflation to 2.5% in May increases the risk of interest rate rises in the autumn, according to IIB Bank chief economist Austin Hughes.

The inflation rate, fuelled by oil price increases, is well over the European Central Bank's target inflation rate of 2% and Mr Hughes believes that markets are likely to begin to focus on the risks of a late autumn increase in interest rates.

"We think euro area period interest rates could rise sharply in coming months for a number of reasons. First of all, the likely beginning of a sequence of increases in official interest rates in the US will tend to exert upward pressure on term rates worldwide as markets conclude the global interest rate cycle is now firmly moving upwards," he said. At 2%, the present ECB refinancing rate is intended to give significant assistance to economic activity in the euro area.