FRANKFURT, Germany — European Central Bank chief Jean-Claude Trichet is sticking with his stern inflation warnings that indicate an interest rate increase could come as early as next month — despite the market turmoil triggered by Japan’s disasters.
Some analysts had thought that Trichet might back off the rate increase — clearly telegraphed at the bank’s March 3 meeting — because of the unsettling impact on financial markets from the earthquake, tsunami and nuclear disaster in Japan.
But Trichet repeated his tough talk Monday, telling European parliamentary deputies that “inflation in the euro area is on the rise” and “the risks to prices are on the upside.”
Higher rates are central banks’ chief weapon against inflation, but can weaken growth and confidence on stock markets if done at the wrong time. The bank has left its benchmark interest rate at 1 per cent since May 2009, even as inflation in the countries using the euro has risen to an annual 2.4 per cent in February — above the bank’s goal of just under 2 per cent.
The comments helped the euro trade higher, pushing it up to $1.4213 — the first time it has ventured past the $1.42 mark since November — from $1.4150 earlier in the day.
Trichet said he had nothing to add to his statement from the bank’s last meeting — before Japan’s earthquake — which most interpreted as a warning the bank may raise rates as early as its next meeting on April 7.
He hammered at his earlier warning that, with oil and food prices rising, the central bank must avoid expectations of higher prices from being built into wage and price agreements and resulting in a vicious inflationary spiral — so-called second-round effects.
In a situation with price rises “of a fairly significant nature, the main problem for central banks is avoiding second-round effects,” he said.