In the beginning of this year, there was an increase in global inflation pressures, along with slower economic growth, which has put central bankers in a difficult situation. In the United States, despite the Federal Reserve cutting interest rates due to a global credit crisis last August, data from Friday revealed that underlying US inflation rose by 0.3 percent in January, following a 0.2 percent increase in December. The overall annual inflation rate also rose to 3.7 percent from 3.5 percent. In the euro zone, where the European Central Bank has not followed the Fed's lead in cutting rates, preliminary data from several countries in February showed that inflation remains well above the ECB's 2 percent target in major economies. In February, inflation rates were at 2.9 percent in Germany, 3.1 percent in Italy, and a record 4.4 percent in Spain. In Belgium, inflation surged to 3.64 percent, the highest rate since July 1991. In Japan, annual inflation remained at a high of 0.8 percent in January, and although there were signs of an economic slowdown, the Bank of Japan may still lower rates from the already low 0.5 percent this year. Ken Wattret, chief euro zone market economist at BNP Paribas, predicted that the euro zone could experience uncomfortably high levels of headline inflation in the near future. European Central Bank Governing Council member Axel Weber warned against expectations of an interest rate cut from the current 4 percent, citing the risks of higher inflation. Federal Reserve Chairman Ben Bernanke stated 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 amidst the banking sector's struggles with high-risk debt write-downs, while also attempting to control inflation. The Fed has already reduced rates by 2.25 percentage points since last September, and is expected to continue cutting. Despite some signs of increasing inflation pressures, analysts still believe the Fed will lower interest rates next. The Fed recently revised its 2008 growth forecast downwards due to the housing market downturn and credit market issues. In Japan, unexpectedly strong housing construction and household spending data released on Friday alleviated 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. According to Yoshimasa Maruyama, an economist at BNP Paribas in Tokyo, 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 wage 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 anticipated in February, reaching its lowest level in two years. Core inflation in the euro zone decreased to 1.7 percent in January from 1.9 percent in December, excluding volatile energy and food costs. The preliminary February figure is expected to remain unchanged at 3.2 percent. Chief European economist at Bear Stearns, David Brown, believes that the muted core inflation rate gives the European Central Bank room to start lowering rates soon. Headline inflation in the euro zone rose to 3.2 percent in January from 3.1 percent in December. Wattret, an economist 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 rise in the euro to a record high against the dollar is posing challenges for exporters. Despite most economists in the latest Reuters poll predicting that the ECB will cut rates twice this year, the likelihood of an immediate move seems lower due to high inflation rates.