The European Central Bank is unhappy with the current level of inflation in the euro zone but expects it to fall below 2% in the second quarter of next year, its chief economist Otmar Issing said last night.
'In the next few months inflation will remain above 2%, depending on oil prices. As of the second quarter of 2005 the rate will fall below 2% and remain there for the foreseeable future,' Issing said in a speech in Frankfurt. He said this was why the ECB's governing council had left interest rates unchanged at recent meetings.
'We are confident we will see a situation next year that is in accordance with our understanding of price stability,' he said. The ECB defines its price stability goal as an inflation rate below but close to 2%. Euro zone inflation is currently running at 2.3%.
Issing said the current high level of oil prices was not a reason for concern. 'If oil prices were to rise a lot, that would cause problems, but the rise would have to be very great for the ECB to paint a gloomy picture,' he said.
Inflation had been above what the ECB would have hoped for this year because of the oil price rise, but over the five and a half years since the launch of the euro, it had been below 2% on average.
The ECB was not happy with the current level of inflation, but there was little risk of a price-wage spiral developing, he said.
Issing also said the euro zone economic recovery was well under way and likely to expand and strengthen in the months ahead, so that it is less dependent on exports. 'The euro zone cannot rely on impulses for growth always coming from outside,' he said.
