FRANKFURT (MNI) – The recent gains in commodity prices may not be
as temporary as is currently believed, according to European Central
Bank Executive Board member Juergen Stark, who also said that observers
have correctly interpreted the central bank’s change in communication
regarding interest rates.
“We should not be consoled by the fact that it is mainly commodity
prices that have driven up HICP inflation,” Stark wrote in an opinion
piece published in Thursday’s edition of the Wall Street Journal.
“Those price rises may be less temporary than we would like to
think: The past decade showed that contributions from commodity price
rises to inflation may tend to reflect a secular trend rather than a
self-correcting development.”
At his press conference earlier this month, ECB President
Jean-Claude Trichet had highlighted the sharp, upward trend in commodity
prices and stressed that “strong vigilance” was needed regarding price
stability risks, a term commonly seen as a signal for an imminent rate
hike.
Inflation expectations were still in line with price stability,
Stark said. However, real Eurozone interest rates are currently below
levels that had led to double-digit inflation in the U.S. decades ago.
“We need to be mindful not to keep interest rates too low for too
long,” Stark said.
“Economic and financial conditions have improved appreciably since
the first half of 2009 and inflation has been rising faster than
anticipated,” he added. “At the same time, we have no reason to be
complacent about the risks surrounding the pace of the economic
recovery.”
Stark stressed that a tighter monetary policy would not be harmful
for economic growth.
“It is up to governments to boost growth and employment by
restoring the public’s and financial markets’ confidence in the
stability of the financial system and in the sustainability of public
finances,” he said.
— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —
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