The European Central Bank today reiterated its warning that high inflation and threats to economic growth from financial market turmoil could drag on longer than expected.
'The euro area is experiencing a rather protracted period of temporarily high annual rates of inflation, resulting mainly from increases in energy and food prices,' the ECB said in its monthly bulletin for April.
'The level of uncertainty resulting from the turmoil in financial markets remains unusually high and tensions may last longer than initially expected,' the central bank commented.
Analysts now expect the ECB to keep its main lending rate at 4% until at least September, unless the 15-nation economy shows signs of a sudden slump, because the bank's primary mandate is for it to ensure price stability.
The bulletin's wording was essentially the same as in comments by ECB president Jean-Claude Trichet a week ago when the ECB governing council left interest rates unchanged despite cuts by the Bank of England and the US Federal Reserve.
Euro zone inflation hit a record level of 3.6% in March and ECB officials have stressed the need to counter expectations that prices will climb still higher. Once households and businesses conclude that prices will continue to rise they begin to anticipate the spiral and thereby add to it.
In this regard, the bank warned again that 'there is a risk that price and wage-setting behaviour could add to inflationary pressures'.
