At the beginning of this year, global inflation pressures increased and, combined with slower growth, put central bankers in a difficult position on how to control prices without causing a recession. In the United States, the Federal Reserve has been cutting interest rates since the economy was hit by a global credit crunch last August. Recent data showed an increase in the Fed's preferred measure of underlying US inflation in January, with an overall annual rate rise to 3.7 percent. In the euro zone, where the European Central Bank has not followed the Fed in cutting rates, preliminary data for several countries in February showed inflation remaining well above the ECB's 2 percent target. Germany, Italy, and Spain all had high inflation rates, with Belgium experiencing the highest rate since July 1991 at 3.64 percent. In Japan, annual inflation remained at a high of 0.8 percent in January, but amid signs of an economic slowdown, there was speculation that the Bank of Japan might lower rates from 0.5 percent. Ken Wattret, chief euro zone market economist at BNP Paribas, predicted that the euro zone could experience uncomfortably high levels of inflation in the near future. He noted that the European Central Bank faced a challenging situation where economic growth was declining rapidly while inflation was not improving quickly enough. European Central Bank Governing Council member Axel Weber warned against cutting interest rates from the current 4 percent due to the risks of higher inflation. Federal Reserve Chairman Ben Bernanke assured that the United States was not facing "stagflation" like in the 1970s, but acknowledged that inflation could complicate efforts to stimulate the economy. Friday's US core PCE index highlighted the conflicting pressures facing central banks as they try to support growth while also controlling inflation. Despite signs of inflation increasing, the Fed is still expected to continue cutting interest rates due to the current economic outlook. The Fed recently lowered its growth forecast for 2008 and Japan has shown some positive economic data, easing concerns of a recession. The Japanese central bank has been hoping for the return of inflation after struggling with deflation for many years. According to economist Yoshimasa Maruyama from BNP Paribas in Tokyo, the trend of prices will be similar in developed countries, with high inflation expected to ease in the future. In Europe, the ECB is facing challenges due to above-inflation pay demands from trade unions in Germany, which could increase inflation expectations and lead to more wage demands. Additionally, the ECB is dealing with a weakened growth outlook in the euro zone. The business climate indicator for the euro zone, based on a survey of corporate managers, decreased more than anticipated in February to its lowest level in two years. Inflation in the core euro zone, excluding volatile energy and food costs, decreased to 1.7 percent in January from 1.9 percent in December. The preliminary euro zone inflation rate for February is expected to remain unchanged at 3.2 percent. Chief European economist at Bear Stearns, David Brown, stated that the muted core inflation gives the European Central Bank room to start lowering rates soon. The headline euro zone inflation rate rose to 3.2 percent in January from 3.1 percent in December. Wattret, an analyst at BNP Paribas, believed that the ECB would shift its focus from the headline inflation rate to the risks of economic growth in the euro zone. The rise of the euro against the dollar, reaching a record high, is causing difficulties for exporters. Despite most economists in the recent Reuters poll predicting two rate cuts by the ECB this year, the likelihood of an immediate action has decreased due to the persistent high inflation.