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.

"The slowdown of the economy is putting the ECB under increasing pressure to cut rates at least on a medium-term perspective," said Commerzbank's Christoph Weil.

Europe, like Japan, may be able to count on demand for its exports from faster-growing emerging market economies. But it remains to be seen how much this can make up for a drop in U.S. demand for their goods.

U.S. consumer confidence hit a five-year low this month, according to a survey published on Tuesday by the Conference Board, a private-sector research group.

An announcement from the Fed's interest-rate meeting is expected at 1815 GMT. Economists predict a quarter-percentage point cut to 2.25 percent, possibly combined with a signal that this may be the last of a series that has reduced the Fed's key rate from 5.25 percent last September.

That announcement is expected to coincide with an estimate of first quarter U.S. GDP, which economists expect to show the economy more or less in stagnation. (with reporting from Reuters bureaux in Tokyo, Brussels and Washington)