ECB observes strong need for vigilance against inflation
Prominent economic and banking officials said yesterday that ample liquidity called for vigilance against inflationary pressures in the eurozone, despite projecting relative stability in the consumer price index (CPI) in the months ahead. «Given the vigorous monetary and credit growth… upside risks to price stability prevail over the medium to long term… Strong vigilance is of the essence in order to ensure risks to price stability do not materialize,» the European Central Bank’s Vice President Lucas Papademos told the spring meeting of the Institute of International Finance (IIF) in Athens. «In the short term, barring further rises in energy prices, annual inflation is likely to remain below 2 percent before rising again toward the end of the year to hover at levels around two percent.» Papademos said the underlying rate of monetary expansion remained robust in an environment of already ample liquidity, but the factors that could trigger financial instability could not be predicted. «Modern, developed financial markets are like a superhighway. They get you where you want to go faster but accidents, when they occur, may be worse than before… Stronger than currently expected wage developments could pose upward risks to price stability… Monetary and credit developments and liquidity conditions also point to upside risks to price stability over the medium to long term.» Alogoskoufis Economy Minister Giorgos Alogoskoufis told the meeting that the global economy was performing well but risks remained. «There are still considerable imbalances in the world economy, some are unsustainable in the long run. The global economy’s expansion is strong… but it’s not time for complacency. We must be vigilant regarding risks,» he said. «There is no trade-off between growth and fiscal consolidation… Countries should be using good times to ensure fiscal sustainability.» Speaking to reporters later, Alogoskoufis said the current level of the euro is no cause for concern. «As you know, we all dislike excessive volatility in exchange rates but we don’t feel that we should be concerned about the level of the euro,» he said. «We should be concerned about the implementation of policy and making our economies more competitive.» Alogoskoufis reiterated the government’s commitment for «a rehabilitation of public finances on a permanent basis» and reforms that will make the economy competitive. «The good performance of the economy reflects the fact that the government’s reform program is bearing fruit.»
