GLOBAL ECONOMY-Inflation and slowdown plague industrial world

By Brian Love

PARIS, April 30 (Reuters) - Soaring prices of food, oil and raw materials forced Japan's central bank to triple its inflation forecast on Wednesday, but fears of a U.S.-induced economic downturn also led it to abandon talk of raising interest rates.

In Europe, where forecasts of economic growth in the euro currency zone were cut this week, data showed inflation had dipped in April from record levels but remained well above the European Central Bank's tolerance level.

In the United States, the Federal Reserve is expected to announce yet another interest rate cut despite a similar inflation problem, as it tries to bolster an economy pummelled by a housing slump and collapse of the sub-prime mortgage market.

In all, news from the three regions highlighted the question of whether the industrialised world faces stagflation -- little or no economic growth combined with high inflation.

NOT SO FAST, JAPAN

The Bank of Japan said after a policy meeting that it had decided to leave interest rates at 0.5 percent. More remarkably, it chose not to signal the long-term need for a rate rise, abandoning a routine of the past two years.

The BOJ cut its growth forecasts for the current business year, which ends next March, to 1.5 percent from 2.1 percent, and almost tripled its inflation outlook to 1.1 percent from 0.4 percent.

It chiefly blamed the surging price of oil, food and other commodities plus contagion from the U.S. downturn. Turmoil on financial markets had not had such a big impact on the funding needs of big Japanese firms at least, it noted.

Official figures also showed that Japanese industrial output fell 3.1 percent in March, marking the biggest monthly fall for at least five years.

EUROPE, NOT SO SLOW?

Euro zone inflation eased to 3.3 percent in April from a record 3.6 percent in March, a preliminary estimate showed, but that remains way above the European Central Bank's tolerance level of 2 percent for medium-term price trends.

The estimate came hand-in-hand with a readout from the European Commission on economic sentiment in March. This slid to 97.1 points, its lowest level since August 2005, from 99.6 points in March. Economists had expected a drop to 99 points.

The Commission forecast on Monday that euro zone growth would slow to 1.7 percent this year and 1.5 percent in 2009 from 2.6 percent in 2007.