PARIS (MNI) – Risks to inflation in the Eurozone are pointing to
the upside, European Central Bank Governing Council member Axel Weber
said during a press conference following the G20 meetings on Saturday.

“I believe that the turnaround in inflation developments may not
come as soon as we had expected in the past. Inasmuch, [there are]
already very distinct risks that are more clearly tilted upwards,” Weber
said.

The Eurosystem will monitor price developments “very closely,”
Weber said.

Weber’s comments go well beyond the official ECB line, contained in
the last two monthly press conference statements, that risks to
inflation are broadly balanced but “could move to the upside.”

ECB President Jean-Claude Trichet, also speaking here, said he
reiterated that view in the G20 meetings, telling participants that in
Europe “there was a balance between risks for price stability in the
medium run but that we did not exclude that in the future this balance
could become unbalanced on the upside.”

Trichet also said the ECB was monitoring increases in commodity
prices “very, very closely” with an eye to avoiding second round
inflation effects in the Eurozone.

Weber said that the discussions among G20 member states
“transmitted very clearly that upward risks concerning price stability
dominate on the global level. In particular as regards energy and food
prices, we got clear signals from our colleagues in emerging markets.”

The Bundesbank president, who recently announced he would step down
after March, warned that such price pressures are likely to be more than
a passing phenomenon since they are partially driven by lasting demand
changes from emerging economies. “It is thus not a one-off story but a
trend-like aggravation,” Weber said.

ECB Executive Board member Lorenzo Bini Smaghi warned recently that
such a “permanent and repeated increase in the prices of imported
products will tend to impact inflation in the advanced countries,
including the euro area.” That concern was echoed by board member
Juergen Stark.

While the economic recovery in the Eurozone “should continue,”
diverging growth among member states is a “very challenging
development,” Weber warned.

In Germany, the economic recovery remains “strong,” he said.
Although the recovery is likely to have lost momentum around the turn of
year, this is likely to be a “passing weak phase” in part due to adverse
weather conditions.

Weber said that the global recovery remains “intact” and the
uncertainty on financial markets is subsiding. Still, G20 central bank
governors and finance ministers “have come to the clear realization that
it is too early to signal relaxation,” he said.

–Frankfurt bureau, +49-173-6529-331; jtreeck@marketnews.com

[TOPICS: M$$EC$,MT$$$$,M$X$$$,MT$$$$,MGX$$$]