European Central Bank President Jean-Claude Trichet said the bank is reviewing its assessment of inflation risks after growth in the 17-nation euro area slowed.
“Risks to the medium-term outlook for price developments are under study in the context of the ECB staff projections that will be released early September,” Trichet told the European Parliament’s economic committee in Brussels Monday. The comment contrasts with Trichet’s last policy statement on Aug. 4, when he said risks to the inflation outlook were “on the upside.”
A switch in the ECB’s language on price risks may herald a change in its policy stance. The central bank, which has raised its benchmark interest rate twice this year to 1.5 percent, is unlikely to increase it again until 2013, Citigroup Inc. economists said last week.
“The ECB are preparing the ground for no further rate increases,” said Alexander Krueger, head of capital market analysis at Bankhaus Lampe KG in Dusseldorf. “Against the background of the sovereign debt crisis and an easing of the inflation situation, I can’t imagine them raising rates.”
Euro-area growth slowed to 0.2 percent in the second quarter from 0.8 percent in the first -- with the German economy almost grinding to a halt -- as Europe’s debt crisis roiled financial markets and weighed on confidence.
“Looking ahead, we continue to see the euro-area economy growing at a modest pace in a context of overall relatively sound economic fundamentals for the euro area as a whole,” Trichet said. “At the same time, not least because of the recently re-emerged tensions in financial markets, uncertainty remains particularly high.”
German inflation slowed more than economists forecast in August, with the rate dropping to 2.4 percent from 2.6 percent, a report showed Monday.
Trichet said euro-area inflation, currently at 2.5 percent, will stay above the ECB’s 2 percent ceiling “for some months” and policy makers are determined to ensure that price expectations remain contained.
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