HEIDELBERG, Germany (MNI) – The decisive question today from the
point of view of the European Central Bank is whether upwards risks to
price stability ultimately materialize, Executive Board member Juergen
Stark said Thursday.

Stark, talking to journalists on the margins of a speaking
engagement, said nobody can say for sure today whether these risks will
indeed emerge, and he reiterated remarks by ECB President Jean-Claude
Trichet earlier in the day, promising that monetary authorities will
closely monitor the situation.

Asked if a rate hike were any more likely today than in December,
Stark replied: “We communicated that we will closely monitor the
situation and the question is whether the upside risks that we spoke of
today materialize. No one can tell today, we have to wait and see over
the next months.”

“In the coming months, due to the development of raw material
prices, in particular of oil but increasingly also agricultural raw
materials, we will have to expect a higher inflation rate than 2%,”
Stark said.

“But we are operating on the assumption that towards the end of the
year we will have a moderation again of inflation,” he said. “And I
would like to underscore again the medium-term orientation of our
policy. And what we have seen up to now are first-round effects, and it
is clear that…it is a question of being preventive and not allowing
second-round effects.”

Still, Stark did not play up the risks that Trichet had identified
earlier, stressing instead the “unanimity on the ECB Governing Council
about the assessment of the situation” and noting the energy-driven
nature of the overall price rises.

He said monetary policymakers must await the precise breakdown of
the components of the recent surge in inflation, but added immediately
that “we look forward, we don’t look back. We have a medium-term
orientation of our policy. And it is a question of continuing to keep
the inflation expectations firmly anchored, and to closely monitor
further developments.”

He continued: “A very decisive point is that…this
stronger-than-expected climb of the inflation rate is overwhelmingly due
to the increase of energy prices.”

The responsibility of energy prices for the acceleration of
consumer price growth “is something that we will communicate in all
clarity” to avoid “misunderstanding in the public” as to why inflation
has accelerated, he emphasized.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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