Feb. 19 (Bloomberg) -- European Central Bank President Jean-Claude Trichet said the central bank isn’t discounting the possibility that the euro-region may face inflation risks.
“In our own judgment there was a balance between risks of the price stability in the medium run but we did not exclude that the future of this balance is unbalanced on the upside,” Trichet said at a press conference after a meeting of Group of 20 nations in Paris today. He also said that the ECB’s rate- setting policy is independent from unconventional measures.
Trichet last month toughened his tone on inflation as labor unions use strengthening economic growth to justify pay demands and companies pass on higher energy costs. Euro-region inflation in January accelerated to 2.4 percent, the fastest since October 2008, and Volkswagen AG, Germany’s biggest automotive employer, earlier this month agreed to raise compensation for 100,000 workers by 3.2 percent to avert strikes.
The ECB is looking “very, very carefully” at oil prices, Trichet told reporters after the briefing. “No second-round effects,” that “is our motto.”
Crude oil prices have surged 14 percent over the past six months, eroding households’ purchasing power and adding pressure on companies to protect their earnings through price increases. Trichet said that G-20 ministers also “noted inflationary pressures” and that they “were to be taken seriously.”
The Frankfurt-based ECB, which aims to keep annual gains in consumer prices just below 2 percent, in December forecast inflation to average about 1.5 percent in 2012. It will release its latest inflation forecasts next month.
ECB governing council member Axel Weber also noted that “the upward pressure is increasing” on inflation.
“I think this is the best characterization of what we see in Europe,” he told reporters. “I’ve already said in the past that we’re above 2 percent now, with a tendency to increase. I think that the turnaround in inflation developments might not come as soon as we expected in the past. So, clearly, there are risks to the upside.”
--With assistance Zijing Wu and Rainer Buergin in Paris. Editors: Craig Stirling, Andrew Davis
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