Weber fears broad-based rise in German inflation

BERLIN (Reuters) - Bundesbank president Axel Weber was quoted in a newspaper interview on Sunday expressing his concerns about inflationary pressures in Germany and his fears the annual price rise may hit 3 percent by the end of the year.

In an interview with Der Tagesspiegel on Sunday, the member of the European Central Bank's Governing Council reiterated the worries about inflationary pressure that he had expressed at a meeting of G7 finance officials in Washington on Friday.

"As a central bank we are indeed concerned," Weber told Der Tagesspiegel.

"What worries us is that the prices are rising across the board -- and not just energy and foodstuffs. Industrial goods have also become more expensive and the same is true for imports."

He added that because price increases for such ordinary consumer items such as milk and butter have also increased, consumers "are feeling" the inflation pressures even more than the official rate reflects.

"By the end of the year the inflation rate in Germany could rise to three percent," Weber said. "The only consolation is that the effects of the value-added tax increase (in January 2007) will have been largely digested."

Germany's harmonized inflation rate rose to 2.7 percent in September, compared to 2.1 percent for the euro-zone average.

In an interview with Reuters in Washington on Friday, Weber had also said by the end of the year German inflation could reach 3 percent, and at the euro-zone level year-end inflation could be very clearly above 2 percent -- the ECB's price stability ceiling -- with only a slight weakening in 2008.

Weber also told Reuters on Friday that the ECB is ready to act if needed to counter higher inflation risks.

The ECB has kept interest rates on hold at 4 percent since June, after a squeeze on global credit markets in mid-August scotched a rate rise almost all analysts had expected for September. Now most economists expect the ECB to keep rates on hold through 2008 <ECB/INT>.

(Additional reporting by Gernot Heller in Washington)