French Inflation December 2007

French inflation accelerated to its fastest in almost four years in December, led by surging energy costs. Consumer prices climbed by an annual 2.8 percent, up from 2.6 percent in November, based on European Union-harmonized methods, Insee, the national statistics bureau, reported today in Paris. That's the most since May 2004. Prices rose month on month by 0.4 percent from November.

Consumer-price increases in the euro area are exceeding the European Central Bank's ceiling of just below 2 percent, prompting ECB President Jean-Claude Trichet to signal that policy makers may be slow to start lowering interest rates since they need to contain inflation even as economic growth slows.

The ECB's Governing Council is ``prepared to act preemptively so that second-round effects and risks to price stability do not materialize,'' Trichet said on Jan. 10 after the bank kept its benchmark rate at 4 percent.

While I feel that a lot of this is "sabre rattling" and that an increase in interest rates is very unlikely, I do think that an early reduction in rates - which is what most of the non-inflation indicators are pointing to the need for - is also unlikely.