European Central Bank (ECB) president Jean Claude Trichet yesterday appeared to take a harder rhetorical stance on inflation, but held interest rates at 2 per cent for the 13th month running.

Following the decision by the US Federal Reserve to increase rates by a quarter-point to 1.25 per cent on Wednesday, Mr Trichet said the ECB was "not influenced in any respect by what has been decided across the Atlantic".

Despite the recent moderation in oil prices, he warned euro-zone inflation would probably remain above 2 per cent into the first half of next year. The ECB's price stability target is below but close to that level.

The ECB has faced a dilemma as high oil prices have driven up inflation - implying a move towards higher rates - but the euro zone's economy has remained hesitant and thus vulnerable to a rate rise.

Earlier yesterday German retail sales figures, showing a 5.2 per cent drop in May compared with the same month a year before, highlighted the extreme weakness of domestic demand in the eurozone's largest economy, which is relying on exports to fuel growth. This series of data is notoriously volatile and over the first five months of 2004 retail sales were down by 1.8 per cent on the same period the year before.

Mr Trichet said, however, that what the ECB had observed in recent months "goes in the direction of a confirmation of our working assumption of a gradual recovery".

He also refused after yesterday's monthly meeting of the ECB's governing council to repeat his previous comment that "all options" remained open, which many economists interpreted as closing the door on an interest rate cut.

Robert Lind, chief European economist at ABN Amro, said the ECB was "obviously clear in their own minds that they don't need to consider cutting \ for the time being".

Economists also argued it would be unlike the ECB to take a stance at odds with the Federal Reserve.

Mr Trichet said the ECB had "no bias", saying: "I don't signal to you that we are likely to do anything in the future.

"It is as simple as that. . . We will see what happens. Nobody is master of the future."

The pace of growth in eurozone manufacturing slowed last month, according to the latest purchasing managers' index. The dip in the index, from 54.7 in May to 54.4 in June, was still consistent with robust industrial production growth.

In France, the rate of growth accelerated.

The survey also showed an improvement in the eurozone employment index, suggesting the pace of job losses was slowing. - (Financial Times Service)