European Central Bank (ECB) President Jean-Claude Trichet said on Wednesday that the euro zone was likely to face a longer period of high inflation than previously expected.
"The recent substantial increase in oil and food prices, together with unfavorable base effects from energy prices, owing to the marked decline in oil prices a year ago, are having a strong upward impact on inflation in the current context," Trichet told the European Parliament's economic and monetary affairs committee.
Official figures showed that annual inflation in the 13-nation bloc sharing the same currency euro shot up to 3.1 percent, the highest level in six and a half years and well above the 2 percent ceiling preferred by the ECB to maintain price stability.
Trichet said the inflation rate was expected to remain significantly above 2 percent in the near future, and it was likely to moderate only gradually in the course of 2008.
"Hence the period of temporarily high inflation rates would be somewhat more protracted than previously expected," he said.
The ECB has been in a dilemma as to whether to raise its euro zone benchmark interest rate to maintain price stability amid the financial turmoil since this summer. Any further increase might be detrimental to the economy which was already hurt by the volatility on the financial markets.
In an effort to relieve the credit squeeze resulting from financial turmoil, the ECB on Tuesday pumped almost 350 billion euros (500 billion dollars) into money markets to supply banks with cash they need. It was the ECB's biggest single injection of cash ever.
Source:Xinhua
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