The European Central Bank will have to raise interest rates if the rate of inflation does not begin to slow by the end of this year. So says a member of the ECB’s Executive Board Jose Manuel Gonzalez-Paramo.
In a newspaper interview he said the “temporary” rise in inflation is due to raw materials prices which the ECB “hopes” will begin to fall. If not, rates will be put up so that inflation doesn’t “get out of control.”
Gonzalez-Paramo added: “The loss of credibility in anchoring inflation has very serious, negative consequences.”
The ECB left euro zone interest rates at a record low of one percent last week. It also tempered speculation of a rate hike in the near-term by saying last month’s larger-than-expected inflation jump had not altered its assessment of medium-term price risks.
Gonzalez-Paramo ruled out the risk of stagflation in the euro zone, with the inflation rate running close to two percent, but acknowledged that Spain “is a situation apart” as it has to absorb the impact of the souring of its decade-long property boom.