ECB's Weber Says Inflation Risks Increased Since June (Update1)
ECB's Weber Says Inflation Risks Increased Since June
July 8 (Bloomberg) -- European Central Bank council member Axel Weber said inflation risks have increased since the ECB's June 2 meeting after oil prices rose to a record and the euro fell, suggesting the bank is reluctant to cut rates.
``The risks to price levels have risen slightly since our last decision, especially because of developments on the oil market, but also because of developments in the exchange rate,'' Weber said in an interview yesterday evening in Frankfurt. The ECB yesterday kept its benchmark rate at a six-decade low 2 percent.
The ECB hasn't changed rates since June 2003 as economic growth in dozen nations sharing the euro is set to lag behind the U.S. for the 13th year in 14, according to European Union forecasts. Italian Prime Minister Silvio Berlusconi and German Economy and Labor Minister Wolfgang Clement have called on the central bank to do more to boost growth in the region.
Weber's comments ``suggest the chances of a rate cut are a bit slimmer now,'' said Lorenzo Codogno, co-head of European economics at Bank of America in London. ``I donÆt think the bank is concerned about inflation, but it is signaling that it could be a factor preventing a rate cut. It's a significant change and suggests a bit more caution on the part of the central bank.''
ECB President Jean-Claude Trichet said after yesterday's decision that the inflation rate may not fall below the bank's 2 percent ceiling this year as oil costs breach $60 a barrel and the euro's 12 percent decline against the dollar this year makes imports more expensive.
Economic Growth
Still, ``the economy is affecting'' prices ``in the other direction,'' Weber said. ``We'll keep our wait-and-see policy and analyze the data as they arrive in coming months. For now, we see that our outlook for the economy is still largely intact.''
The ECB on June 2 cut its growth forecast for this year to about 1.4 percent from 1.6 percent. The bank also said growth will accelerate to about 2 percent next year and the inflation rate will drop to 1.5 percent.
The euro's decline may prompt the ECB to revise those estimates, as it makes European goods cheaper abroad, while exacerbating the impact of higher oil prices. The bank's forecast had assumed a euro exchange rate of $1.29 this year and next. A euro bought $1.1904 at 9:23 a.m. in Frankfurt today.
``We looked at all the developments since our last decision,'' Weber said. ``At the moment, we find the current interest rate appropriate.''
To contact the reporter on this story: Brian Swint in Frankfurt at bswint@bloomberg.net.
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