Thursday, February 10, 2011

Weber Says ECB Will Act If Inflation Expectations Increase

By Christian Vits and Gabi Thesing - Feb 10, 2011 9:16 PM GMT+0800

Bundesbank President Axel Weber said the European Central Bank will raise interest rates if inflation expectations pick up.

While rates are “appropriate” for now and the ECB still expects the inflation rate to fall below 2 percent, “we will very closely monitor any potential deviation” to consumer price expectations “and act appropriately,” Weber said in a speech in Vienna today.

“There should be no doubt about the Eurosystem’s determination to continue to secure price stability in the euro area,” he said.

A survey of professional forecasters, published in the ECB’s monthly bulletin today, predicted that inflation in the longer term would breach the ECB’s limit. The ECB, which tries to keep annual price gains just below 2 percent, has signaled concern about faster inflation feeding into wage demands. Economists forecast the bank to start raising borrowing costs from the fourth quarter, a Bloomberg survey shows

Euro-area inflation accelerated to 2.4 percent last month after energy and food costs surged. Economists surveyed by the ECB forecast annual price gains of 1.9 percent in 2011, compared with a previous projection of 1.5 percent. They predict 1.8 percent for 2012, compared with 1.6 percent before.

Weber said the increase in the inflation rate has been boosted by “one-off factors” and should be “even if they remain for a few months of a temporary nature.”

Weber’s appearance in Vienna was overshadowed by reports that he will step down as Bundesbank President and has dropped out of the race to succeed ECB President Jean-Claude Trichet.

Weber said he won’t comment on his plans for the future, having spoken with German Chancellor Angela Merkel.

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