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Corporate Synergies Group Inc. said its CEO, Eric Raymond has retired to pursue his other interests, which include working with charities.

The Mount Laurel, N.J., provider of health-care benefits products and services said it has named its chairman, Scott Birnbaurm, acting CEO while it looks for Raymond’s permanent replacement.

Birnbaum has served on Corporate Synergies’ board since 2004 payday advance. He previously served on the board of Mercer Management Consulting, which is now Oliver Wyman, a global management consulting firm.

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U.S. thrifts lost $5.4 billion in the second quarter and set aside a record amount to cover losses from bad mortgages and other loans.

Data from the U.S. Office of Thrift Supervision released Wednesday show federally insured savings and loan institutions posted their second-largest quarterly loss ever in the April-June period, after the $8.8 billion loss in the fourth quarter of last year. Heavily focused on mortgage lending, thrifts have been stung by mounting home-loan defaults.

The $5.4 billion quarterly loss compared with net profits of $3.8 billion in the year-ago period, and a loss of $627 million in the first quarter.

The roughly 830 thrifts also set aside a record $14 billion to cover losses from bad mortgages and other loans.

John Reich, the thrift agency’s director, said 98% of institutions still have adequate capital to weather the housing and economic turbulence.

"Solid capital and sizable reserves for potential loan losses show once again that thrift managers are responding appropriately to the challenges they face," Reich said in a statement. "These two factors will serve the industry well in riding out the current crisis."

The report from the agency, a division of the Treasury Department, came a day after the Federal Deposit Insurance Corp. said the number of troubled banks and thrifts jumped to 117 — the highest level since mid-2003. The FDIC also said profits earned by banks and savings and loans plunged by 86% in the second quarter, to $5 billion.

The thrift agency said its number of problem institutions grew to 17 at the end of the second quarter from 10 a year earlier.

The agency said the amount that savings associations set aside for problem loans soared in the second quarter to 3.68% of average assets from 0.38% a year earlier.

Thrifts differ from banks in that, by law, they must have at least 65% of their lending in mortgages and other consumer loans — making them particularly vulnerable to the persistent housing downturn cash till payday. The institutions regulated by the Office of Thrift Supervision range in size from big lenders like Seattle-based Washington Mutual Inc. (WM, Fortune 500) and Sovereign Bancorp Inc (SOV, Fortune 500). of Philadelphia to small community banks.

Like banks, thrifts are being closely examined by federal inspectors for signs of heavy exposure to declining markets or troubled areas such as construction and real estate loans.

The largest bank failure in years occurred in July and involved a thrift. Pasadena, Calif.-based IndyMac Bank was the biggest regulated thrift to fail and the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984. It was taken over by the FDIC with about $32 billion in assets and deposits of $19 billion.

IndyMac succumbed to the pressures weighing on institutions of all sizes nationwide: tighter credit, tumbling home prices and rising foreclosures.

Eight other FDIC-insured banks have failed so far this year, compared with three in all of 2007, and more are expected to collapse this year. 

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A survey of top economists shows that many are growing more concerned about inflation and slightly less worried about mortgage and credit market problems.

According to the National Association of Business Economists, 16% of the 278 members responding believe energy prices are the most serious short-term risk to the economy, up from only 5% who picked that in the March survey.

In addition, another 15% cited overall inflation as the greatest threat, up from 10% in March.

Nonetheless, the financial crisis remains the biggest worry — 46% of the economists surveyed cited subprime loan defaults, excessive household and corporate debt or the credit crunch as the biggest problem. That’s down from the 52% who cited defaults and debt as the most serious threat in the March survey.

Although oil prices have retreated since the July 25 to Aug. 11 survey period, one economist said she doubts that concerns about energy and inflation has abated much since then.

"My guess is it may even be higher," said Brandeis University Business School professor Catherine Mann, a member of the NABE committee that conducted the survey.

Economists also were fairly critical of the recently passed housing bill, signed by President Bush on July 30. Of those surveyed, only about a third said it would stabilize home prices or hasten a housing recovery, even though 59% thought it would reduce mortgage foreclosures.

Nearly eight in 10 of the economists surveyed said the bill constituted a bailout of home borrowers, while 65% said it represented a bailout of lenders payday loans. In addition, 71% said it was unfair to those who were not mortgage borrowers.

The bill also allowed troubled mortgage lenders Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) to borrow unlimited amounts of money from the Treasury Department and opened the door for Treasury buying equity in the firms if they needed such assistance.

Three-quarters of the economists agreed that the two firms, the primary source of funding for banks and other home lenders making mortgages, were "too important to fail." Only 20% said the assistance authorized in the bill would amount to nationalization.

The economists also were mostly supportive of the Federal Reserve’s response to the crisis in the financial markets: 83% thought the Fed’s program to make more money available to banks and Wall Street firms if necessary had been either moderately or highly effective.

However, 88% of the economists said they were at least somewhat concerned this would encourage future risk taking by financial firms. In addition, 55% said the Fed’s monetary policy was "about right," up from only 48% who believed that in March. The Fed’s key interest rate now stands at 2%

The Fed cut this rate seven times between last September and April, and left rates unchanged in June and August. Most investors and economists expect the Fed to keep rates at 2% following its September and October meetings. 

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Richmond Federal Reserve Bank President Jeffrey Lacker called for “demonstrably'' privatizing Fannie Mae and Freddie Mac, becoming the first Fed official to publicly clash with the Bush administration's strategy of keeping them as federally backed firms.

“I would prefer to see them credibly and demonstrably privatized,'' Lacker said today in an interview with Bloomberg Television. He agreed with former Fed Chairman Alan Greenspan's view that the two largest U.S. mortgage finance firms ought to be nationalized, then split up and sold off.

Treasury Secretary Henry Paulson by contrast has tried to keep Fannie Mae and Freddie Mac in their current form as government-sponsored companies owned by shareholders. Lacker's remarks come as a slide in the firms' stocks and increase in their borrowing costs spur speculation the Treasury will intervene.

Lacker said financial-market turmoil shouldn't keep the Fed from raising interest rates to bring down inflation, becoming at least the fourth Fed official to make that point in the past five weeks.

“It is important to withdraw this monetary-policy stimulus in a timely way,'' Lacker said. “That may require us to withdraw before we are certain all of the weakness is behind us and before we are completely certain that financial markets are as tranquil as we would like to see.''

Rate Outlook

Federal funds futures traders expect no change in interest rates through year's end. The Fed has reduced its main rate 3.25 percentage points over the past 11 months to 2 percent.

“I certainly don't think the federal funds rate should be any lower given where we are,'' said Lacker. `Monetary policy is very stimulative.''

Lacker also said he would be surprised to see a large U.S. bank fail. “I am broadly confident in the ability for commercial banks to weather the storm,'' he said. Still, there is “substantial uncertainty'' around the losses and writedowns that will result from mortgages originated in 2006 and 2007, which could cause “other shoes to drop,'' he added.

Lacker's comments on Fannie Mae and Freddie Mac echoed the views by some former Fed officials, led by Greenspan, that the companies' links with the federal government ought to be severed. The firms package mortgages into bonds for sale to investors. They traditionally borrowed more cheaply than private companies because of an implicit government backing.

`Still a Debate'

“It was an unusually straightforward answer for a Fed official,'' David M. Jones, president of DMJ Advisors LLC in Denver and author of four books on the central bank, said in an interview with Bloomberg Television. “There's still a debate over this issue'' of addressing Fannie Mae and Freddie Mac, he said.

Paulson last month won the authority to inject capital into Fannie Mae and Freddie Mac, in legislation aimed at restoring confidence in the firms. Stocks and bonds issued by the two have since declined amid continued concern they lack sufficient capital.

Fannie Mae dropped 2.3 percent to $6.01 today, down 69 percent since the start of last month. Freddie Mac lost 5 percent to $4.17, a decline of 74 percent over the same period.

“Treasury is monitoring market developments vigilantly,'' spokeswoman Jennifer Zuccarelli said in a statement. “We are focused on encouraging market stability, mortgage availability and protecting the taxpayers' interests.''

Lacker, 52, heads a district that is home to two of the four biggest U.S. banks, Bank of America Corp. and Wachovia Corp., both based in Charlotte, North Carolina fast cash.

Lone Dissent

A former head of research at the Richmond Fed, he alone dissented in rate votes at the Fed in late 2006, advocating higher rates to stem inflation. He votes again in 2009.

The Richmond Fed president warned in June that the Fed, by expanding its financial safety net, may prompt investors to take on excessive risk. Central bankers in March opened the discount window to investment banks and loaned $29 billion against a portfolio of Bear Stearns Cos. securities to facilitate a merger with JPMorgan Chase & Co.

Since Lacker made the June 5 speech in London, the Fed has made available the discount window to Fannie Mae and Freddie Mac and agreed to a change in the law making it easier for the central bank to loan to failed banks under government control. The Fed has also extended the availability of discount window lending to investment banks until January 2009.

Safety Nets

Fed Bank Presidents Gary Stern and Tom Hoenig have also expressed concerns about the expansion of federal safety nets for financial institutions.

“The too-big-to-fail problem has once again gotten worse,'' Stern said in an Aug. 14 speech in Three Forks, Montana.

Lacker said in a separate interview with Bloomberg Radio he was wary of the Fed gaining more regulatory power. Congress, the Treasury Department and the central bank are reviewing regulation in light of the credit crunch. The Treasury has proposed giving the Fed more authority to safeguard market stability.

“Our ability to exercise independent judgment about the level of the policy rate I think is quite important,'' Lacker said. “I do see some merits to the argument that adding responsibilities could threaten to dilute the independence'' that the Fed needs for monetary policy.

Continued Slump

Lacker said he expects economic growth of about 1 percent over the next year, hampered by the continued slump in housing. Still, economic weakness shouldn't deter the Fed from its focus on inflation, he said. Inflation excluding food and energy prices is likely to rise to about 2.5 percent before moderating, Lacker said in his radio interview.

Lacker said consumers' expectations of inflation are “elevated'' and show “fragility.''

“We are still in a fairly risky situation'' on the inflation front, he said.

The Fed can raise rates without impeding a credit market recovery and such a rate increase may occur sooner than many people expect, said Dallas Fed President Richard Fisher, who dissented Federal Open Market Committee votes five times this year, preferring to raise them last month.

Atlanta Fed President Dennis Lockhart said in an Aug. 15 interview he expected that “the reasonable policy debate will be around holding versus raising rates.'' Philadelphia Fed President Charles Plosser said July 23 that policy makers should act before inflation expectations become “unhinged.''

Lacker's advocacy for an early rate increase may not prevail on the committee, according to Robert Eisenbeis, chief monetary economist at Cumberland Advisors, and former research director at the Atlanta Fed.

Lacker “saw prospects for slower growth in the future,'' Eisenbeis said. “Yet he was also concerned about rising inflation. I think growth is going to be the dominant concern and that's what's going to carry the day for most of the people there.''

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India's central bank should raise interest rates as inflation at a 16-year high hurts the government's electoral prospects before a vote due by May, according to the finance ministry's top economist.

“Monetary policy has to focus on inflation,'' the ministry's Chief Economic Advisor Arvind Virmani said in an interview in New Delhi yesterday. “The political system doesn't tolerate inflation beyond a certain point.''

India's government is relying on the central bank to tame prices after Prime Minister Manmohan Singh's cabinet last week decided to pay more to civil servants than was recommended by a wages panel. Inflation jumped to 12.44 percent this month, making life harder for the 500 million people in India who survive on less than $2 a day.

“The government has put the ball in the Reserve Bank's court for inflation management,'' said N.R. Bhanumurthy, an economist at the Institute for Economic Growth in New Delhi. The timing of the wage increases for state employees “coincides with elections nearby.''

The Reserve Bank of India last month raised its inflation forecast for the year to March 31 to 7 percent from a previous target of between 5 percent and 5.5 percent, even after increasing its benchmark interest rate three times since June.

The central bank's key repurchase rate will rise to between 9.25 percent and 9.5 percent by the end of October from 9 percent, according to eight of 12 economists surveyed by Bloomberg after the last monetary policy announcement on July 29.

Higher Salaries

Inflation may accelerate further after Singh's cabinet approved an average salary rise of 21 percent for 5 million government employees, backdated to January 2006. The 157 billion rupee ($3.6 billion) cost of the pay increase in the financial year to March 2009 is almost twice the 79.95 billion rupees recommended by a panel which reviews wages for civil servants every 10 years or so payday loans in one hour.

Singh's government, which came to power four years ago with a pledge to help the poor, has lost ground in nine of 11 state polls since January 2007.

“Inflation hurts the poor more disproportionately and has a political significance in India,'' said Ramya Suryanarayanan, an economist at DBS Bank Ltd. in Singapore. “Elections are around the corner.''

Higher borrowing costs will have an “impact'' on domestic demand in India, the fastest-growing major economy after China, Virmani said.

`Bottom of Range'

“Our forecast range for the economy has been between 8 percent and 9 percent and developments since March suggest the likelihood of it being near the bottom of that range is higher now,'' he said.

Asia's third-largest economy is expected to expand 7.7 percent in the 12 months to March, compared with an estimated 9 percent a year earlier, according to last week's report from the prime minister's advisory council. That would be the slowest pace of expansion in four years.

The government should open up more parts of the economy and pursue pending reforms such as allowing a higher level of foreign investment in India's pension and insurance industries, Virmani said.

“Anything that improves the investment climate and investment intentions is good and will enhance productivity and demand and help counter the impact of monetary policy on certain other sectors,'' he said.

India's central bank should also use the exchange rate to help control inflation, Virmani said. A stronger rupee helps to tame prices by making imports less expensive.

“Whether it's the exchange rate or interest rates or any other tool, it's part of the monetary system,'' he said. “All the tools should be used to contain inflation.''

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A top Toyota Motor Corp. executive says the auto industry has to quickly change its model lineups and develop clean technology because energy sources are shrinking and costs and environmental concerns are on the rise.

Bob Carter, group vice president and general manager of the Toyota Division in the United States, called on automakers and parts supply companies to turn to each other for help in dealing with high gas prices and slumping U.S. sales.

"There’s no more time-outs. The game is on the line here," he said in a speech Thursday at the Center for Automotive Research Management Briefing Seminars in Traverse City. "We have to radically revamp our lineups, create cleaner technology, and work with others to develop new energy, new fueling stations and smarter roads," Carter said.

That can only be achieved through greater collaboration, innovation and risk-taking, he said in his speech.

"Great ideas will not only rescue us from the current downturn, they’ll help us meet the even greater challenges that lie ahead," he said.

Carter predicted the full-size pickup truck market will eventually recover from its current slump, but he predicted a rough patch for Toyota (TM) in the short term paydayloans.com. The U.S. auto market, he said, will see gradual improvement in 2009, with steady progress in 2010.

U.S. auto sales were down nearly 11% during the first seven months of this year, with truck sales off nearly 19%.

Carter also said U.S. population growth will fuel added auto sales in the long term, with 32 million more people in the country in the next 12 years. He predicted total industry sales in the United States will return to their peak of 17 million vehicles a year, and possibly exceed it. 

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Farmers are on pace to produce the second largest corn crop and fourth largest soybean crop in history, which may lead to lower prices for the key grains, the government said Tuesday.

In its first estimates this year based on actual field visits and farmer surveys, the U.S. Department of Agriculture raised its estimate of corn production and said "nearly ideal" weather has helped Midwestern farmers recover from June’s devastating floods.

That recovery is expected to lead to lower prices for corn, soybeans and wheat. That may provide some relief to meat producers who use corn and soybeans for feed, for makers of corn-based ethanol and maybe even for shoppers at supermarkets.

The department forecast that farmers will harvest 12.3 billion bushels of corn, up more than 570 million bushels from last month’s estimate of 11.7 billion. That’s down 6% from last year’s record crop of 13.1 billion bushels, but 17% above the 2006 harvest.

Average corn prices this year are expected to drop to $4.90 to $5.90 per bushel, down 60 cents from last month’s forecast of $5.50 to $6.50.

Corn prices soared to record levels near $8 after the floods, the worst to hit the Midwest in 15 years. But cooler, wetter weather since then will boost corn yields to 155 bushels per acre, up from last month’s estimate of 148.4, the department said.

Corn prices have already dropped to almost $5 per bushel, though that is still higher than in 2006, when a bushel cost $2.

The department has lowered its estimate for soybeans a bit, to 2.97 billion bushels from 3 billion last month.

Still, soybean prices are also expected to fall to $11.50 to $13 per bushel, down 50 cents from $12.00 to $13.50 last month, the department said.

High grain prices have virtually eliminated profits for chicken and beef companies this year instant cash advance. Little Rock, Ark.-based Tyson Foods Inc. (TSN, Fortune 500), the world’s largest meat company, said last month that its third-quarter profit fell by 90% due to higher feed prices.

Pilgrim’s Pride Corp. (PPC, Fortune 500) the nation’s largest chicken producer, said July 29 that it swung to a loss of $52.8 million, from profit of $62.6 million in its third quarter due to higher prices.

Ethanol producers such as Archer Daniels Midland Co. (ADM, Fortune 500) are also affected. VeraSun Energy (VSE), a Brookings, S.D.-based ethanol producer, delayed the opening of a plant until late July due to high corn prices.

The department raised its estimate of the amount of corn that will be used for ethanol production to 4.1 billion bushels, up from last month’s estimate of 3.95 billion.

The department also slightly boosted its forecast of wheat production by 2 million bushels, to 2.462 billion, and projected that wheat prices will average $6.50 to $8, down 25 cents from last month. 

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India's industrial production growth accelerated in June, before higher interest rates had a chance to crimp consumer spending.

Output at factories, utilities and mines rose 5.4 percent from a year earlier after a revised 4.1 percent gain in May, the Central Statistical Organisation said in a statement in New Delhi today. That matched the median forecast in a Bloomberg News survey of 23 economists.

Factory output may slow in coming months after the central bank raised borrowing costs three times since June to tame runaway inflation. Sales growth is already easing at Tata Motors Ltd. and Maruti Suzuki India Ltd., which makes half the cars sold in India.

“Production growth will remain weak this year due to rising interest rates and higher input costs,'' said Sonal Varma, a Mumbai-based economist at Lehman Brothers Inc. “Weakening overseas sales are also weighing on companies' output.''

The Bombay Stock Exchange's benchmark Sensitive Index, which has declined about 25 percent this year amid concern weaker growth will crimp corporate earnings, fell 2 percent to 15,206.6 at 2:19 p.m. in Mumbai.

The Reserve Bank of India on July 29 raised the repurchase rate to 9 percent from 8.5 percent, after two increases in June. Governor Yaga Venugopal Reddy is grappling with inflation running at 12.01 percent, the fastest pace in 13 years.

Elsewhere in Asia

Reddy isn't the only central banker in Asia who is increasing borrowing costs, with policy makers across the region raising interest rates as higher food and fuel prices threaten inflation targets. Indonesia, Thailand, Pakistan and the Philippines all lifted their benchmark rates last month.

Higher borrowing costs are hurting Asian manufacturers. Japan's industrial production growth halted in June and South Korea's 6.7 percent pace was the slowest in nine months.

Factory output, which accounts for about a quarter of India's $912 billion economy, grew 5.2 percent in three months ended June 30, compared with a 10.3 percent gain in the same period a year ago.

Manufacturing, which accounts for about 80 percent of Indian production, gained 5.9 percent in June, compared with 9.7 percent in June last year, today's report showed. Electricity output rose 2.6 percent in June from 6.8 percent in a year-ago, mining grew 2.9 percent from 1.5 percent and consumer-goods production increased 10 percent.

Cars, Motorcycles

Production growth partly rose in June due to a base effect caused by the index dropping to 255.3 in June 2007, according to economists including Saugata Bhattacharya at Axis Bank Ltd. in Mumbai. The output index rose to 269.1 in June this year, today's report showed.

Higher interest rates have begun to discourage spending by consumers who rely on loans to buy cars and motorbikes. Sales at Maruti Suzuki increased 1.1 percent in July, the slowest pace in four months. Sales at Tata Motors, India's biggest truck maker, fell 3.3 percent in July as demand declined.

The central bank's fight against inflation will result in a “compromise'' on economic growth, India's Junior Finance Minister Pawan Kumar Bansal said in an interview with Bloomberg News earlier this month.

India's economy, the third-biggest in Asia, is forecast by the central bank to grow 8 percent in the fiscal year that started April 1. That would be the slowest pace in four years.

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Egypt's central bank increased its benchmark interest rate for a fifth time this year and warned it will “not hesitate'' to raise it again to combat the highest inflation rate in the Middle East.

Policy makers increased the benchmark overnight deposit rate by half a percentage point to 11 percent and the overnight lending rate by the same amount to 13 percent, the central bank said in a statement on its Web site today. The Cairo-based bank has raised the deposit rate by a total of 2.25 points this year.

“Inflation expectations are still high,'' said Simon Kitchen, an economist at Cairo-based EFG-Hermes Holding SAE, the biggest publicly traded investment bank in the Arab world. “There are still inflationary risks that warrant raising rates.''

Emerging markets, including Turkey, Brazil, South Africa and India, have increased interest rates in past months to fight inflation fueled by rising global oil and food costs. Egypt's inflation rate rose to 20.2 percent in June, the highest since the government began regularly releasing records to the public in 1998.

“The monetary policy committee remains concerned about possible propagation of food inflation to non-food inflation,'' Rania Al-Mashat, division chief of the monetary policy unit, said in the statement credit reports. “The monetary policy committee will not hesitate to adjust the key central bank rates to ensure price stability over the medium term.''

Wheat Imports

Egypt is the world's largest wheat importer. The country bought 7 million tons of wheat from abroad, half of its annual consumption, in the year ending June 30, according to U.S. and Egyptian government statistics.

Accelerating inflation has promoted the government to cut customs duties on imported poultry, ban exports of cement and rice, increase food subsidies and authorize 18 million additional people to receive subsidized food. Public discontent and protests against rising wages led the government to increase the wage of state workers by 30 percent in May.

The economy in Egypt, the Arab world's most populous nation, will probably expand 7.1 percent in 2009 compared with 7 percent in 2008, the International Monetary Fund said in its latest report on its Web site.

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Robert Revet, a flight manager for Deutsche Lufthansa AG, just won a 5.1 percent raise from the German airline after spending last week out on strike.

“With a bit of luck, this pay increase will help us keep up with inflation, at least for a while,'' Revet, 56, said as he returned to work at Frankfurt airport on Aug. 1. “With inflation where it is, we wanted a significantly better deal this time.''

Revet's satisfaction won't be shared by European Central Bank President Jean-Claude Trichet, who left the benchmark interest rate at 4.25 percent today. Pay deals like the one at Lufthansa may force him to keep rates at a seven-year high for longer or even tighten again to contain inflation, raising the risk of a deeper economic slump in the 15-nation euro region.

“This is an inflation-busting wage raise that will worry the ECB,'' said David Owen, chief economist at Dresdner Kleinwort in London. “Trichet will stay on alert in warning about wage inflation.''

Policy makers say they're concerned a wage-price spiral will develop as the higher cost of living prompts workers to seek more pay and companies raise prices to compensate.

Record oil and food costs pushed euro-region inflation to 4.1 percent in July, the fastest in more than 16 years and double the ECB's 2 percent limit.

Economic Slump

At the same time, the economy is faltering. Societe Generale SA economists estimate gross domestic product shrank 0.5 percent in the second quarter from the first. By contrast, the U.S. economy expanded 0.5 percent in the three months through June.

Trichet, whose Frankfurt-based ECB increased borrowing costs last month, told a press conference today that “there is very strong concern that price and wage-setting behavior could add to inflationary pressure.''

Lufthansa employees aren't alone in securing inflationary pay deals in Germany, Europe's largest economy. Negotiated wages jumped 3.5 percent in the year through April, the biggest gain in 12 years, as companies such as BASF AG and ThyssenKrupp AG bowed to union demands.

This year's wage rounds culminate next month, when IG Metall, Germany's biggest union, starts talks for 3.2 million metal, electronics and car workers whose collective contracts expire Oct. 31. The union won a 5.2 percent raise for about 85,000 steelworkers in February.

Pay packets are also growing in economies which, unlike Germany, haven't spent recent years containing labor costs and boosting productivity. Wage inflation in Italy accelerated to 3.6 percent in June, the fastest in three years.

`Room for Maneuver'

In a bid to restrain inflation expectations and persuade workers that the current price shock will pass, the ECB lifted its benchmark rate by a quarter point on July 3 freecreditreport. The U.S. Federal Reserve this week left its key rate at 2 percent.

ECB council member Klaus Liebscher signaled there may be a need for still higher borrowing costs in Europe, saying in a July 24 interview that “we haven't exhausted our room for maneuver'' even as economic growth slows.

Adding to the ECB's concerns is the fact that seven European countries index wages to inflation, a policy Trichet has labeled “extremely dangerous.'' In Belgium, Cyprus and Luxembourg, wages are automatically adjusted for past consumer-price increases, while Spain, France, Malta and Slovenia also have some form of indexation, according to the ECB.

`Worrying Trend'

“The ECB will continue to see a worrying trend in wage growth,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Group Plc in London. “This is likely to remain the central bank's dominant worry.''

Europeans' confidence in the outlook for the economy dropped the most since the Sept. 11 terrorist attacks last month and unemployment rose for the first time in three years in May, reports showed last week. Barclays Capital estimates the economy contracted in the second quarter and will stagnate in the third after growing 0.7 percent in the first three months of the year.

The European Union's statistics office will release second- quarter GDP figures on Aug. 14.

Slowing growth will “probably prevent firms from passing much of these wage increases on to consumers,'' said Holger Schmieding, chief economist at Bank of America Corp., who expects the ECB to keep rates unchanged for a year. “Wages are a concern for the ECB, but will be outweighed by rising recession risks.''

Ken Wattret, an economist at BNP Paribas SA in London, said there's a 50-50 chance the ECB will increase rates again, although its room to do so will narrow as the economy splutters. “How wage developments evolve will be crucial to the evolution of monetary policy,'' said Wattret.

That means the likes of Lufthansa's Revet may ultimately decide the direction of interest rates.

“If the workers keep demanding higher wages, the ECB has no choice but to raise rates,'' said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “The ECB doesn't want to be blamed for cooling the economy, but it will do so to beat inflation.''

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