Tags: Trichet Inflationary Pressures May Mean Rate Hikes

Trichet: Inflationary Pressures May Mean Rate Hikes

Tuesday, 25 Jan 2011 08:19 AM

The European Central Bank may hike interest rates to fight inflationary pressures driven by higher food and raw materials prices, says ECB President Jean-Claude Trichet.

Core inflation rates, which discount energy and food, have been relatively tame in Europe and the United States.

That doesn't mean monetary policy authorities can relax, Trichet tells The Wall Street Journal.

"In the U.S., the Fed considers that core inflation is a good predictor for future headline inflation."

But in the eurozone, "core inflation is not necessarily a good predictor," which means rates could rise if needed.

Other central banks need to keep an eye on inflation as well, Trichet adds.

"All central banks, in periods like this where you have inflationary threats that are coming from commodities, have to … be very careful that there are no second-round effects" on domestic prices.

Economic growth has been strong in emerging-market economies, and inflation has already been an issue in countries like China and Brazil.

High unemployment rates and spare capacity in the U.S. and other industrialized economies are staving off inflation, for now.

Rising fuel and food prices at home or abroad won't spook U.S. monetary-policy authorities, some economists say.

"While the Fed may identify higher commodity prices as a potential concern, policymakers are not likely to reverse course and tighten policy unless higher commodity prices push through to core inflation," says University of Oregon economics professor Tim Duy, according to Reuters.

"Such an outcome appears unlikely given persistently high unemployment."

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The European Central Bank may hike interest rates to fight inflationary pressures driven by higher food and raw materials prices, says ECB President Jean-Claude Trichet. Core inflation rates, which discount energy and food, have been relatively tame in Europe and the...
Trichet Inflationary Pressures May Mean Rate Hikes
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2011-19-25
Tuesday, 25 Jan 2011 08:19 AM
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