Trichet sees gradual euro zone strengthening

European Central Bank president Jean-Claude Trichet forecast a gradual strengthening in euro zone growth but also voiced concerns that inflation may rise in the short term.

Trichet acknowledged that euro zone quarterly momentum was weak in the fourth quarter at only 0.3%, attributing the poor showing down to seasonal volatility.

'Looking through the short-term volatility to medium-term trends, our assessment continues to reflect a progressive strengthening of consumption growth,' he told the European parliament's economic and monetary affairs committee. 'Looking ahead, the conditions remain in place for continued sustained economic expansion,' he added.

The European Commission is due to shed light on the outlook for the euro zone economy tomorrow when it publishes growth and inflation forecasts for the biggest economies in the 12-nation bloc.

Trichet cautioned that the outlook for growth 'remains subject to downward risks relating, in particular, to high and volatile oil prices and concerns about global imbalances'. But he was worried that inflation could begin climbing higher on the back of rising oil prices.

'In the coming months, annual inflation rates may again be somewhat higher amid renewed increases in energy prices and some base effects, as Eurostat's estimate of 2.4% for inflation in January would appear to confirm,' the ECB President said.

He said the risks to the inflation outlook 'remain on the upside', pointing to strong money supply and credit growth, which are followed as indicators of future inflation trends.

Trichet pledged that the ECB's governing council 'will exercise vigilance so as to continue ensuring the solid anchoring of medium to long-term inflation expectations at levels in line with price stability.'

Separately German central bank head Axel Weber, addressing a forum in Stuttgart, likewise spoke of risks to euro zone price stability. 'With regard to the latest economic and monetary developments, inflation risks persist,' he said, noting that oil prices remained 'very volatile'.