Inflationary concerns rising amongst ECB members

In “Mersch Says ECB May Warn of Upside Inflation Risks Next Week”, Bloomberg reports that European Central Bank (ECB) council member Yves Mersch has added his concerns over inflation to a growing list of worried voices:

“Mersch is the fourth policy maker this week to signal increased unease about inflation. Executive Board member Juergen Stark said last night that the ECB is “prepared to act decisively and immediately if needed” to maintain price stability. Fellow board member Lorenzo Bini Smaghi said the bank may need to reassess its policy stance.”

Most importantly, Mersch indicated:

“I would not be surprised at most colleagues concluding that we have upside risks to price stability”

The biggest concern seems to be that increased food and energy prices will motivate labor unions to press for wage increases, thus stoking general inflationary pressures. Strong economic growth in Germany is also increasing the need for higher rates but lingering issues with sovereign debt in the periphery countries may yet prevent rate hikes.

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