Trichet flags July ECB rate hike with "strong vigilance"

Reuters

FRANKFURT (Reuters) - The European Central Bank is in "strong vigilance" mode over inflation pressures, ECB President Jean-Claude Trichet said on Thursday, using code words to indicate an interest rate increase is probably only a month away.

"Strong vigilance is warranted," Trichet told a news conference after the bank kept interest rates at 1.25 percent.

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He said evidence since the ECB's May meeting confirmed "continued upward pressure on overall inflation mainly owing to commodities and energy prices."

The ECB used the phrase "strong vigilance" in March before increasing rates in April. It also used the phrase repeatedly during its 2005-2007 rate hike cycle, typically one month before it raised rates, although there were exceptions to that rule.

Euro zone inflation was 2.7 percent last month, well above the ECB's target of close to just below 2 percent.

(Reporting by Sakari Suoninen, editing by Mike Peacock)