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. Last Updated: 07/27/2016

ECB Reiterates Inflation Warnings




LONDON -- European Central Bank chief economist Otmar Issing has stepped up recent warnings about rising inflation by calling the current wage claim negotiations a "dangerous, fragile situation."


Issing said Friday there was a danger that the temporary rise in inflation due to surging oil prices would become more permanent if it led to higher wage settlements.


ECB officials, mandated with maintaining price stability, have already voiced unease after Germany's biggest trade union IG Metall last week started its 2000 wage talks with a much higher-than-expected claim of 5.5 percent.


But markets are still waiting for stronger guidance from the ECB as to how it expects developments to feed into price stability and monetary policy.


In a departure from his prepared speech before bankers and investors in London, Issing said it would be a concern for the central bank if wage settlements in Europe were not taking into account the distortion in inflation rates from oil prices.


"We face a dangerous, fragile situation as wage negotiations are just starting in Europe," he said.


"We see developments in headline inflation heavily impacted by oil prices, which have tripled in 12 months."


Accelerated growth in the euro zone combined with rising oil prices have pushed inflation up. Oil markets raced to fresh nine-year highs Friday as cold weather in the United States and OPEC supply curbs triggered fears of dwindling stocks.


German consumer price inflation for January due next week, closely watched because Germany is the euro zone's biggest economy, is forecast to rise by as much as 1.7 percent annually after a 1.2 percent rise in December.


The ECB has a 2 percent target for euro-zone consumer price inflation, a level that many forecasters think could now be reached. This might require more aggressive interest rate hikes to stem an inflationary buildup.