The European Central Bank (ECB) received some encouraging news yesterday when official data showed an unexpectedly sharp fall last month in the euro-zone's money supply growth.
But economists said the build-up of other inflationary pressures from high oil prices and the euro's low external exchange rate meant that the ECB was unlikely to use the money supply data as an excuse to delay raising interest rates.
M3 growth accelerated at an annual rate of 5.4 per cent in June, compared with 5.9 per cent in May. The three-month moving average, which the ECB regards as a more useful indicator, fell to 6 per cent in the April-June period from 6.4 per cent between March and May.
M3 growth is still well above the ECB's "reference value", or loose medium-term target, of 4.5 per cent. Overall, the data suggest money supply growth, though slowing, may still be expanding at too fast a rate for the ECB's comfort.
Even more threatening, however, are the inflationary pressures coming from the euro's weakness, which is driving up import prices.
Many economists are drawing the conclusion that the ECB will raise interest rates by 0.25 of a percentage point in September, taking the main lending rate to 4.5 per cent.
