Issing joins ECB fight for moderate wages

European Central Bank chief economist Otmar Issing on Sunday became the latest leading euro zone banker to warn companies and workers not to kindle inflation by agreeing lavish wage settlements.
"The rise is not dramatic, but it is a development which for me is a reason for some concern," Issing told Germany's Handelsblatt in an article released ahead of publication on Monday.
The ECB would be forced to hike interest rates in the event that inflation were lifted permanently to higher levels if companies and workers agreed hefty wage increases because of a temporary hike in oil prices, the newspaper said.
But it did not directly quote Issing on the issue.
Issing's appeal follows a similar message from ECB President Jean-Claude Trichet in three leading European newspapers a day earlier - although Trichet stopped short of threatening with the rate hike ammunition.
The ECB's campaign to smother wage demands comes at a time that inflation has jumped to well above the central bank's two percent ceiling.
The region's consumer price index rose 2.5 percent in May and 2004 looks set to become the fifth straight year the ECB misses its target of keeping inflation below but close to 2.0 percent.
While the ECB's official policy line remains to keep all its options open with no bias towards hiking or cutting interest rates, financial markets and economists expect its next move to be a rate tightening.
The ECB next meets to decide on interest rates on July 1.
Issing also refuted criticism that the ECB's inflation estimates had consistently been too low and said the bank was launching a major research project into why inflation was often "sticky," or slow in retreating.
"We want to know what the reason is," Issing said.
Annual consumer price growth has rarely been below two percent in any single month in the last few years, even as the economy in the 12-nation single currency bloc has only just started to recover from a three-year stagnatory phase.
Issing also said the ECB had not changed the oil price basis it uses in its economic forecasts. A news wire report last week said the ECB considered using spot prices instead of futures prices in its models, because the latter were too unreliable.