BoC holds, inflation accelerates in euro area, growth concerns in the US

The Bank of Canada left its main interest rate unchanged yesterday, but meanwhile we still can't rule out another rate hike from the European Central Bank, not after September's inflation numbers in the euro area hit 2.1 percent, the highest since August 2006 and up from 1.7 percent in the prior month.

The Bank of England, though, may start considering cutting interest rates after inflation in the UK held steady in September at 1.8 percent.

US CPI inflation data come out later today and the core rate will be the main focus. However, Alan Greenspan is now suggesting that monetary policy-makers may need to give greater weight to the rising costs of energy and food. From Reuters:

"The notion of looking at a core price requires that energy and food have no long-term trend and that their fluctuations are essentially random. That is now becoming an increasingly questioned premise," Greenspan said.

Greenspan also thinks that the credit crunch will continue to weigh on the US economy.

"Even though the credit crunch is easing, it is residual," he said in an interview on CNBC television.

The impact tighter credit has had on borrowing costs "is going to slow this economy down to a certain extent," he said. The effects of that slowing are likely to last into the first quarter of 2008, Greenspan said.

Treasury Secretary Henry Paulson probably agrees, saying yesterday that the US housing crunch is likely to continue to impact the economy and capital markets "for some time yet".

And data out yesterday indicates that the pessimism on housing is justified. From MarketWatch:

The seasonally adjusted housing market index fell to a record low of 18 in October from 20 in September, the National Association of Home Builders reported Tuesday. It's the lowest reading in the index since its inception in 1985. Read more at the NAHB website.

The rest of the economy has done better, but there are signs of slowing there nevertheless. Again from MarketWatch:

Output of the nation's factories, mines and utilities increased by 0.1% in September, softened by a drop in production of motor vehicles, the Fed said. Output was flat in August.