The European Central Bank is not preparing markets for tighter monetary policy even though surging oil markets have tilted inflation risks to the upside and require particular vigilance, ECB President Jean-Claude Trichet said on Wednesday.
High oil prices, which rose briefly above $70 a barrel on supply concerns after Hurricane Katrina, weaken the growth outlook, while the devastation to the US Gulf of Mexico presents a new uncertainty, Trichet told a European parliamentary committee.
"I am not preparing markets for an increase in rates. I'm not preparing the market for a decrease of rates. They are appropriate and we remain vigilant," Trichet said.
Even though crude oil has leaped 60 percent in price over the past year, wage demands remain contained and there are no signs of "second-round" inflationary effects, Trichet said, referring to situations 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 the Economic and Monetary Affairs Committee of the European Parliament.
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