The ECB has signalled that it will increase its benchmark rate by a quarter point to 2.5% on 2 March, based on its view that economic growth in the eurozone is raising in"ation pressures. The ECB expects inflation to break its 2% ceiling for a seventh year this year, as growth picks up to about 2% from 1.4% in 2005.

With the "inflation monster" haunting ECB chief economist Otmar Issing, "it's possible our confidence in logic is misplaced and the ECB will raise rates even beyond the now inevitable March hike", Perkins says. The German economy failed to expand in the fourth quarter of 2005, as household spending declined and trade did not contribute to growth. German retail sales, factory orders and industrial production all declined in December. Yet German business confidence increased to a 14-year high in February, suggesting the economy is rebounding.