Friday May 16, 10:09 AM
Trichet says no room for complacency on euro zone inflation UPDATE
(Updating with further comments on inflation)
BRUSSELS (Thomson Financial) - European Central Bank (ECB) president Jean-Claude Trichet said there is no room for complacency over inflation in the euro zone.
'Price stability in the medium term has to be ensured,' Trichet told the European Commission's annual economic forum.
He said the ECB must be 'extraordinarily attentive' in fulfilling its mandate to control inflation.
Euro zone inflation was 3.3 percent in April and has been well above the ECB's target of a rate below but close to 2.0 percent since last October.
Trichet said headline inflation may temporarily drift away from the central bank's target due to significant commodity price shocks.
But he added: 'What is important is that the monetary policy stance is permanently designed to deliver price stability in the medium term, taking into account the medium and long term risks assessed by the economic and monetary analysis.
'The ECB has always taken firm and timely actions to pursue a monetary policy which best serves the ultimate objective of maintaining price stability,' he said.
He said the ECB's track record over the past ten years has been widely recognised as being more than satisfactory.
Average annual inflation was 2.1 percent between 1999 and 2007 despite a succession of very significant shocks, particularly in oil and commodity prices, he said.
'Overall, despite the different shocks the ECB had to cope with since its inception, prices have remained stable over this period, average inflation being moderate and inflation volatility being significantly lower in the euro area than it was before EMU (Economic and Monetary Union),' he said.
And the stability of inflation expectations 'has been remarkable' since the creation of the euro zone, he said, adding that most member states have enjoyed better financing conditions than in the 1990s.
However, he warned: 'We have to be credible all the time. Credibility is not a given.'
He said the credibility of the ECB's monetary policy is crucial to the success of the economic and monetary union.
Trichet said the ECB's rate-setting governing council 'is paying particularly close attention to wage negotiations in the euro area' and reiterated that wages should not be indexed to the consumer price index.
Trichet said the bloc 'has room to develop its growth potential' which is too modest, mainly because of rigidities in the labour market.
And he also said unemployment is still too high.
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