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ECB chief says inflation may top 2% ceiling next year

European Central Bank (ECB) president Jean-Claude Trichet said that inflation may exceed the bank's 2 percent ceiling next year as the ECB edges closer to raising rates across the dozen-nation euro region.

"The price of oil was responsible for pushing headline inflation much higher than our definition of price stability," Trichet said yesterday at a press conference. "We did not exclude that it could go higher in the period ahead and I certainly would not exclude that we would be over and above our definition of price stability next year."

The ECB chief said that the central bank must be "strongly vigilant" on inflation, repeating comments he made Oct. 6. He said at that time that the ECB would be prepared "at any time" to increase interest rates for the first time in five years.

European politicians are concerned that central bankers are preparing to raise rates to ward off inflation as economic expansion in the dozen nations sharing the euro lags behind the US for the 13th year in the past 14.

"We see that risks have augmented, though we don't yet see signs of second-round effects," Trichet said.

So-called second-round effects include a pass-through of rising oil prices into wages and other costs. Trichet spoke after the conclusion of the annual meeting of the Group of 20 industrial and developing nations near Beijing yesterday.

"We are of the opinion that rates are still appropriate," Trichet said.

Crude oil prices surged 48 percent since the start of the year, prompting central banks from Indonesia to the US to raise interest rates to ward off inflation. Rising fuel prices are adding to business costs and may threaten consumer spending.

"It is the duty of all central banks, including the ECB, to preserve the solid anchoring of inflation expectations," Trichet said.

The Group of 20 of industrial and developing nations cited high oil prices, widening global imbalances and protectionism as the main risks to global economic growth in a statement yesterday.

Trichet said "there was no discussion at the plenary discussions of the foreign-exchange question," a reference to pressure by the US for China to allow its currency to move more in line with market forces.
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