Wolgang Franz : ECB Rate Should Go UP

"'I would recommend that the ECB keep rates constant until there is clear evidence the financial crisis is over,' Wolfgang Franz, one of five advisers to the German government and head of the ZEW Center for European Economic Research, told reporters in Mannheim today. 'Then the ECB might need to raise rates to take care of inflation.'"

Oil is up, the hump that the ECB forecasted seem to be more severe. indeed, remember that inflation is calculated on year on year basis, so if oil price next year is at 126 dollar as it is today, then oil inflation is ZERO. That the magic of statistics, but in the meantime your salary has not followed through...

Now we start to see evidence that industries are passing those high commodity cost to the consumers- witnessed in the U.S and German Producer Price data. Now for the ECB it's all right as long as the consumer doesn't ask for higher wages because then you will have a spiraling inflation as witnessed in the 70's or late 80's (the unfamous "second round effect")

And that's the reason why the german are asking for higher interest rates. They don't have a housing bubble as most european country do. They are very competitif in term of innovation, productivity. The high euro against the dollar seems not to be hurting their performance.

So higher interest might be on the card if the global economy doesn't slowdown sharply or go into a recession next year otherwise there is no way to bring the oil and commodity down ...