Inflation worries threaten rates

European Central Bank policy makers Axel Weber and Lucas Papademos said the bank may need to raise interest rates further if the inflation outlook deteriorates.

Should inflation risks materialise, “we’ll have to re-examine our monetary-policy stance,’ Weber, 51, said in an interview in his office in Frankfurt yesterday. Papademos said in a speech in Buenos Aires that there’s a risk of a wage-price spiral which, if it happens, would “require a stronger degree of monetary tightening”.

Europe’s economy contracted in the second quarter and may not recover in the third, raising the risk of the region’s first recession since the euro was introduced in 1999. Weber and Papademos said the ECB, which raised its benchmark rate by a quarter point to 4.25% in July, remains focused on fighting inflation.