Moreover, the four motors of consumption -- that is wages, inflation, unemployment and consumer confidence -- are on a downward trend and should drag spending down.

This is the highest inflation rate we've seen in over three years and much higher than 0.3 percent in June 1999, ... Euro-zone inflation should come in around 2.2 percent in June, and the ECB is likely to respond with a 25-basis-point rate rise in September.

We were expecting a kind of balancing out between rising business sentiment and consumer confidence, which we thought would slip, but in fact we have improved on both fronts.

This level of inflation, combined with falling unemployment and rising capacity utilization, is a recipe for continued preventative rate hikes.

Thailand has been more resilient to shocks since 1998, given the manageable inflation, low unemployment, more flexible exchange rate and increased international reserves.

Despite low unemployment, wage growth remains contained. With job gains slowing, the risks from wage inflation appear to be receding. Interest rates will remain on hold in 2006.