At the beginning of this year, global inflation pressures increased, posing a challenge for central bankers who must find a way to control prices without causing a recession. In the United States, the Federal Reserve has been cutting interest rates since last August to combat a credit crunch, and recent data showed a rise in underlying US inflation in January. The overall annual inflation rate also increased. In the euro zone, the European Central Bank has not followed the Fed's lead in cutting rates, and inflation in major economies remains above the ECB's 2 percent target. In February, inflation rates were high in Germany, Italy, and Spain, with Belgium experiencing the highest rate since July 1991. In Japan, annual inflation remained steady at 0.8 percent in January, which is the highest level in a decade. However, despite signs of an economic slowdown, there is speculation that the Bank of Japan may lower interest rates from the current 0.5 percent. Ken Wattret, the chief euro zone market economist at BNP Paribas, believes that the euro zone could experience uncomfortably high levels of headline inflation in the coming months. He stated that the European Central Bank is facing challenges as the economic growth outlook is worsening rapidly, while inflation is not improving quickly enough. Axel Weber, a member of the European Central Bank Governing Council, expressed concerns about market expectations of an interest rate cut from the current 4 percent, warning about the risks of higher inflation. Federal Reserve Chairman Ben Bernanke reassured on Thursday that the United States is not heading towards "stagflation" like in the 1970s, but acknowledged that inflation could complicate efforts to stimulate the economy. Friday's US core PCE index highlighted the challenges facing central banks as they try to boost growth amidst turmoil in the banking sector due to high-risk debt, while also keeping inflation under control. The Fed has already lowered rates by 2.25 percentage points since September and is expected to continue cutting rates. Despite signs of increasing inflation, experts believe the Fed will still opt for another rate cut. The Fed recently revised its economic forecast for 2008, citing the housing market decline and credit market issues as factors. In Japan, strong housing construction and household spending data alleviated some concerns about a recession following the US. The Japanese central bank has been hoping for inflation to come back after years of fighting against deflation. Yoshimasa Maruyama, an economist at BNP Paribas in Tokyo, believes that the price trend will be similar in all developed countries, with high inflation now but 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. A survey of corporate managers in the euro zone showed that the business climate indicator fell more than expected in February, reaching its lowest level in two years. Core inflation in the euro zone, excluding volatile energy and food costs, decreased to 1.7 percent in January from 1.9 percent in December. The preliminary figure for February is expected to remain unchanged at 3.2 percent. Chief European economist at Bear Stearns, David Brown, noted that the muted core inflation rate could give the European Central Bank room to lower interest rates soon. Headline inflation in the euro zone increased 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 to growth in the euro zone. The recent increase in the euro's value against the dollar has been challenging for exporters. According to a recent Reuters poll, most economists anticipate that the ECB will reduce rates two times this year. However, the likelihood of an immediate rate cut appears to be decreasing as inflation remains high.