FRANKFURT (MNI) – Early monetary tightening by the European Central
Bank is warranted to counter inflationary pressures that may be more
permanent than currently projected, ECB Governing Council member Axel
Weber said Tuesday.
ECB President Jean-Claude Trichet on Thursday hinted that the
central bank will raise rates at the upcoming monetary policy meeting in
April.
Weber went further than Trichet, noting that “at this point” he
“would not do anything to correct market expectations” of ECB interest
rates rising to 1.75% by the end of the year, from the current level of
1%.
The head of the Bundesbank warned that he “sees significant future
price increases” that would justify such a move. He noted that while the
ECB staff’s forecast of 1.7% HICP in 2012 denotes medium-term price
stability, it is based on a number of technical assumption that may not
materialize.
In particular, he said that oil futures, now signaling a reduction
in prices, are not necessarily a reliable indicator. “I don’t fully
subscribe” to oil prices falling back, Weber said.
In fact, a number of indicators “suggest that price increases could
be more permanent and fundamental than regressive forecasts show,” Weber
said, citing permanent wage increases in the emerging economies and
permanent increase in food demand.
“I believe that one has to counter-steer early on,” to avoid
inflationary pressures, which are already discernible in the early
stages of the production cycle, from broadening, he said.
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–Frankfurt bureau, +49-173-6529-331; jtreeck@marketnews.com
[TOPICS: M$$EC$,MT$$$,M$X$$$]
