Euro zone inflationary risks require particular vigilance to prevent surging oil costs from pushing up consumer prices broadly, ECB President Jean-Claude Trichet said today.
But Mr Trichet gave no hint that the central bank was about to abandon its wait-and-see stance on interest rates in the face of weak and uncertain economic growth.
Mr Trichet noted that growth risks in the 12-nation euro zone are to the downside and that wage demands remain contained with no signs of "second-round" inflationary effects.
This is when companies raise prices and workers demand higher wages to compensate for increased energy costs. "We will continue to monitor inflation expectations very, very closely. Particular vigilance is required in order to ensure that longer-term inflation expectations remain well anchored," he told a committee of the European Parliament.
Addressing the European Parliament's Economic and Monetary Affairs Committee, Mr Trichet said not only soaring oil prices but also Hurricane Katrina's devastation of the US Gulf of Mexico coast creates uncertainty. "At the moment, we consider that the global impact will most likely remain limited and temporary but we will continue to monitor very closely any available further evidence."
Oil prices surged past $70 a barrel in recent weeks to a new record high on supply concerns after Hurricane Katrina, but since have calmed to $63.50 a barrel.