European Central Bank chief economist Mr Otmar Issing was quoted as saying yesterday that he was slightly worried about rising inflationary expectations,even though the increase was not hefty.
"The rise is not dramatic, but it is a development which for me is a reason for some concern," Mr Issing was quoted as saying by Germany's Handelsblatt in an article released ahead of publication due today.
The ECB would be forced to hike interest rates if rising oil prices were to permanently lift inflation to higher levels because companies and workers agree higher wage settlements, so-called second-round effects, the newspaper said. But it did not directly quote Mr Issing on this issue.
The ECB next meets to decide on interest rates on July 1st. Financial markets and economists expect it to stay put throughout most of the year and then start hiking interest rates by 2005 as the euro zone economy recovers.
European Central Bank President Mr Jean-Claude Trichet urged companies and workers to join the fight against inflation by not pumping up wage settlements on the back of soaring oil prices.
Mr Trichet, in an interview that appeared in three leading newspapers across the euro zone at the weekend, also said Europe should do its utmost to crank up its growth rate by making its economy more flexible.
A recent rise in inflation will prove temporary, the world's second most powerful central banker said, as long as rising oil prices do not feed through into higher wages.
"Looking beyond the spike in prices in the short term, inflation will fall back to align itself with our definition of price stability under 2 per cent and close to 2 per cent," Mr Trichet said. "That presupposes there shouldn't be any secondary effects and that's why we made an appeal to social partners to avoid any inflationary spiral," he added.
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