BERLIN (Reuters) - Wage and fiscal policy in the euro zone could buoy inflation and the European Central Bank may need to act, ECB Governing Council member Axel Weber said in a newspaper interview released on Saturday.
“I am concerned that, with regard to the conduct of wage and fiscal policy, the recent temporary heightened inflation rate could be consolidated for longer than is necessary above the tolerance level of the Eurosystem,” Weber said.
“Should indications of this increase, we must react with interest rate policy,” he added in an interview with Germany’s Welt am Sonntag. “We are therefore observing the current wage agreements and finance policy decisions very closely.”
The ECB has kept interest rates at 4 percent for the last 10 months while the U.S. Federal Reserve, the Bank of England and the Bank of Canada have cut their benchmark rates in the face of accelerating inflation and uncertainty about the impact of a global credit crisis on the world economy.
Another ECB Governing Council member, Austria’s Klaus Liebscher, told Reuters on Friday that no room exists to cut euro zone interest rates and rate rises could not be ruled out.
Weber told Welt am Sonntag: “Our primary goal is price stability.”
Surging energy and food prices pushed euro zone inflation to a new high of 3.6 percent in March, well above the ECB’s target of just below 2 percent.
“We must make sure that inflation expectations remain stable, and that the higher prices now do not lead to higher wages and salaries. Because that would inevitably start off a wage-price spiral,” Weber said.
Reporting by Paul Carrel; Editing by Ruth Pitchford