Global interest rates up as inflation looms

Much of the industrialized world is shifting its economic foot from stepping on the accelerator to tapping on the brakes.

While high energy prices grab headlines, another economic trend - higher interest rates - will soon affect millions of people and perhaps the vibrancy of nations.

Sharply rising economic growth in several countries is forcing central banks to consider either ratcheting up interest rates or reining in money supplies to make sure inflation doesn't get out of hand. That will affect the cost of everything from home mortgages to business loans.

For example:

• The Bank of England Thursday hiked its key interest rate to 4.5 percent, the fourth increase in eight months. British economists show rising concern about inflation, especially in house prices.

• Alan Greenspan and his band of merry central bankers are expected to hike American short-term interest rates by 0.25 percentage points at the end of this month - the same amount as their colleagues in London.

• China's economy has been growing so fast that the government has boosted rates twice in the past three months.

• This week, the Royal Bank of New Zealand raised interest rates a quarter percentage point to 5.75 percent, stating concern that inflation might rise above its target range of 1 to 3 percent.

• Japan has moved beyond the deflation that has troubled it for a decade to the point where some economists are now speculating that the Bank of Japan will soon have to limit the nation's money supply - the fuel that powers an economy.

"Japan's predicament is more severe than the one Greenspan faces," writes David Malpass, chief economist of Bear, Stearns & Co., a Wall Street firm. "Whereas the Fed has provided 'ample liquidity,' the Bank of Japan has provided enormous liquidity lasting over a decade."

So far, the European Central Bank stands as an exception to the economic tightening trend in the industrial world. At a policy meeting June 3, the bank - which sets monetary policy for the eurozone of 12 nations - left its main interest rate unchanged at 2 percent. That's twice the rate in the US. ECB policymakers were concerned that the high price of oil - then around $40 a barrel, now a bit less - could raise inflation in Continental Europe.

One reason for the bank's hesitancy is that Germany, Europe's most important economy, is still dawdling. An economic institute there predicts the nation's economy will increase 0.6 percent in this quarter from the last quarter - hardly robust.

In several other countries, though, economic growth has been far more dynamic, leading to the tighter policies. In China, for instance, a government think tank last week forecast the country's gross domestic product would grow at a 11.4 percent annual rate in the present quarter.

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