ECB chiefs highlight oil price fears

EUROPEAN Central Bank policymakers yesterday stressed their concern that high oil prices may curb growth and stoke inflation in the eurozone.

Ireland’s ECB Governing Council member John Hurley said that the outlook for growth had worsened in recent months in line with weaker consumer confidence.

But he and other policy makers said there was enough liquidity in the eurozone economy and that strong money supply growth might increase future inflationary pressures.

“I think eurozone growth prospects have become less favourable over the last few months - confidence surveys and activity data especially,” said Mr Hurley, who is also Governor of the Central Bank and the FSA.

“Industrial production has continued to weaken and this suggests a loss of momentum. So the risks to growth are on the downside, and one of the principal risks would be high energy prices.”

Oil prices hit new record highs above $60 a barrel yesterday, increasing costs for businesses and consumers dependent on oil and potentially pushing up prices elsewhere in the wider economy.

“I think energy prices and those indicated by futures markets do pose risks to growth, not just in the euro area but more widely, and the continuing high energy prices could also pose upward risks to inflation if second-round effects were to materialise,” said Mr Hurley.

A number of Mr Hurley’s ECB colleagues made similar comments on oil prices on the fringes of the Bank for International Settlements annual meeting in Basel, Switzerland and in interviews elsewhere.

ECB Executive Board member Jose Manuel Gonzalez-Paramo pointed to inflation risks from tax rises and government-set prices too, in an interview with Spanish newspaper La Gaceta.

“The risks are on the upside. From oil, yes, but in the past the evolution of regulated prices and indirect taxes have also provided surprises,” he said.

The policymakers have also been united behind the ECB’s current policy on interest rates, which eschews a bias towards either raising or lowering rates for the time being.

The ECB has held its main interest rate at a historic low of 2% for more than two years, yet growth has failed to pick up, prompting some politicians and economists to urge a rate cut.

But ECB Executive Board member Lorenzo Bini Smaghi told an Italian newspaper that there was enough liquidity - ready cash to fund investment - in the eurozone already and that a lack of confidence was to blame for poor growth.

“There is plenty of liquidity, but families and firms are not taking the full benefit to invest and consume because... they lack confidence,” he told La Repubblica.