Central bank heads from leading industrialised and developing countries called on Monday for "very special attention" to prevent ongoing global economic growth from turning inflationary.
Jean-Claude Trichet, spokesman for the G10 group of central bank governors and president of the European Central Bank, urged monetary policymakers not to be complacent, saying inflationary expectations were starting to rise during a period of high commodity and energy prices.
"It is not the time for complacency if we want this global growth to be sustainable. We have to be careful to see that this period of global growth does not end up in inflation," Trichet told a media briefing.
The hawkish comments come as world stocks stormed past highs reached during the 2000 tech bubble, with the MSCI World Index earlier in the day hitting a record 349.06. The index's previous high was in March, 2000, when it reached 349.04 before roughly halving in value in a global equity crash.
"Global economic growth remains strong and steady," Trichet said, but warned: "There are elements there that call for very special attention, especially in terms of inflationary risks."
Second-round effects of inflation had not yet appeared, he said, adding, "But we all concluded what was very important to prevent the second round effect because once they are there, it is too late."
The world economy roared into 2006 after a lacklustre final quarter of last year and looks to be accelerating as a series of leading indicators and official forecasts are all pointing up. The world's biggest central banks - the ECB, the US Federal Reserve, and the Bank of Japan - are all in tightening mode.
Earlier on Monday, the European Commission raised its 2006 economic growth forecast for the eurozone, citing a stronger German economy, robust investment and world growth despite expensive oil.
In the meantime, global imbalances are becoming a rising concern for financial policymakers - an issue they highlighted in their April Group of Seven statement.
Trichet cited, as in previous G10 meetings, the unruly unwinding of global imbalances as a possible threat to the global economy, along with protectionism and the potential inflationary effects of high oil and commodity prices.
"We all consider that we have to look at the inflationary risks with great attention," he said. "We noted that the prices of imported consumer goods in the industrialised economies was going up a little bit," he said.
Economists said Trichet's comments were consistent with recent signals that the rate-tightening cycle was bound to continue.
"He is expressing genuine concern that strong growth can lead to inflation. Global interest rates will go up further - this is the message," said Joachim Fels, an economist at Morgan Stanley in London.
"Central banks want to telegraph to the market interest rates are going up further. They want to assure the market they will do whatever is necessary to keep inflation down."
Trichet said the central bankers did not discuss exchange rates.
"We did not discuss exchange rates. We are in line with what has been discussed in recent international gatherings," he said, declining to comment further.
The dollar fell to a one-year low against a basket of currencies on Monday, extending losses after G7 finance chiefs in April called for all members of the global economy to share responsibility in addressing the imbalances.
The G7 also urged emerging Asian economies, particularly China, to seek greater exchange rate flexibility so that the currencies can appreciate. Markets took it to mean that the G7 suggested a decline in the dollar was needed.
The G10 meeting was held at the Bank for International Settlements (BIS), a central bank for the world's central banks, in the Swiss border town of Basel.
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