Sunday, January 6, 2008

Trichet talks tough

Trichet can talk the talk, but can he walk the walk. The next ECB interest rate decision will decide the question. Inflation is well above target, and interest rates need to go up.

AFP — European Central Bank President Jean-Claude Trichet said Saturday that the bank was ready to act to control inflation -- five days ahead of an ECB decision on whether to hike eurozone interest rates.

"The ECB's governing council stands ready to counter upside risks to price stability, in line with its mandate," the French bank chief told a meeting of Germany's centre-right Christian Democratic Union (CDU) party in Wiesbaden.

"The governing council has decided to continue to pay great attention to financial market developments," he added, according to a copy of his speech on the ECB website.

Trichet, who will preside over the first meeting of the ECB governors this year on Thursday, added that "looking ahead, the inflation rate is expected to remain significantly above two percent in the near future, and it is likely to moderate only gradually in the course of 2008."

Inflation hit three percent in the eurozone in November, well above the ECB target figure of just under two percent, and the bank fears that it could contaminate the rest of the economy -- notably via higher salary settlements, which it calls "second-round effects."