If anything, this confirms the Fed's bias towards inflation rather than worrying about a slow down in growth. The Fed seems to have no worries about growth, as least as far as manufacturing is measured by ISM.

We expect the combination of solid economic growth and higher inflation risks to push the Fed to raise rates higher than is implied by prevailing bond yields.

The signal is that if we have good growth in 2006 but no inflation, there is no need to raise rates. I would even say, one more hike (this year), but not necessarily at the next announcement.

We got a little bit less growth and a little bit more inflation.

The really surprising thing is the lack of inflation given this kind of growth.

This pickup in monthly house-price inflation is consistent with the continuing upward trend in market activity in recent months and the previous pattern of house price movements when the Bank of England begins to reduce interest rates.