ECB raises interest rates amid strong economic data

The European Central Bank raised interest rates yesterday in a move that surprised practically no one. From Bloomberg:

"We stand ready to do whatever is necessary and appropriate to ensure price stability," ECB President Jean- Claude Trichet said at a press conference in Frankfurt after the ECB lifted the refinancing rate to 2.5 percent from 2.25 percent. The ECB has "a stimulative monetary policy. There is no doubt in my mind."

And yesterday's data from Europe, including those from Germany, would not have inspired any doubt:

German retail sales rose the most in more than a year in January and orders for plant and machinery surged, adding to evidence that growth in Europe's largest economy is gathering pace.

Sales, adjusted for inflation and seasonal swings, climbed 2.7 percent from a month earlier, the biggest gain since June 2004, the Federal Statistics Office in Wiesbaden said today. Domestic orders jumped 27 percent in January from a year earlier, according to the VDMA industry association.

And European producer prices surged in January:

The euro-zone industrial producer price index rose by 1.2% in January 2006 compared with the previous month. In January 2006, EU25 prices rose by 1.1%. In December 2005 prices increased by 0.2% in the euro-zone and by 0.6% in the EU25.

In January 2006 compared to January 2005, industrial producer prices rose by 5.3% in the euro-zone and by 7.1% in the EU25.

As usual, energy was the main reason for the jump in prices, but even excluding energy, prices increased by 0.4 percent in both the euro-zone and the EU25.

In the US, the news was somewhat mixed. The labour market remains relatively robust, according to Reuters:

Initial filings for state unemployment insurance aid rose to 294,000 in the week ended February 25 from an upwardly revised 279,000 for the previous week, the Labor Department said... A department analyst said the rise in new claims was due in part to a failure of the seasonal adjustment process to anticipate two holidays not celebrated nationwide -- Abraham Lincoln's birthday and Presidents' Day.

A separate report by the outplacement firm Challenger, Gray and Christmas showed the number of corporate layoffs in the pipeline fell 15.5 percent in February to their lowest level in four months, with fewer job cuts in telecommunications, consumer products, manufacturing and industrial goods industries.

But there are more doubts in retail:

In preliminary figures for February, America's largest retailers said cold weather and a major winter storm hurt sales and warned a later Easter holiday would hurt March results.