Need to prevent oil-fed inflation spiral: Trichet

The European Central Bank needs to ensure recent oil and commodity price rises do not trigger inflationary problems, the bank's President Jean-Claude Trichet said on Monday, days after signalling a July interest rate hike. Speaking at an event organised by the London School of Economics, Trichet said the recent surge in energy and commodity costs had driven the sharp increase in headline eurozone inflation over the last year.
"In those circumstances, the central bank must prevent increases in the prices of raw materials from being incorporated into the long-term inflation expectations which could trigger second round effects on wages and prices," he said The ECB left interest rates at 1.25 percent last week but signalled it would raise them to 1.5 percent in July as it seeks to bring uncomfortably high eurozone inflation back in line with its preferred level of just under two percent.
The rest of Trichet's comments were largely a blend of recent speeches. He urged eurozone leaders to come up with tougher new rules to curb the accumulation of sovereign debt and called for debt-strained eurozone members to beef up their fiscal repair efforts. He added that the eurozone recovery was now more firmly established, although the bloc's near-10 percent unemployment rate remained far too high.
"With the (eurozone) recovery now more firmly established, we have seen in recent months upside risks to the outlook for price stability over the medium term," he said. "Unemployment at 9.9 percent of the labour force remains much too high, and structural reforms are of the essence to make the euro area economy much more flexible and to elevate its growth potential," he said.