CENTRAL BANKERS on both sides of the Atlantic escalated their verbal offensive against inflation yesterday, sparking a rise in the US dollar and falls in stock and bond prices.
The central bankers’ comments came against the backdrop of growing consumer discontent over soaring food and fuel prices, with protesters marching in Asia over soaring oil prices and Spaniards stockpiling fuel and food due to a truck drivers’ strike over high oil prices.
In Europe, Erkki Liikaken, a Finnish member of the European Central Bank’s rate-setting governing council, said the euro zone’s central bank was in a state of “heightened alertness over inflation” and that a rate rise in July was possible though not certain.
In the US, Dallas Federal Reserve president Richard Fisher also indicated that soaring prices were a bigger threat than a weak economy, saying he would pay the price of weaker economic growth if that kept inflation in check.
“We want to make sure the message is clear . . . that we will not countenance building inflationary expectations,” Fisher said in a speech in New York.
The Bank of Canada also signalled its concern about inflation and surprised markets by keeping its key interest rate steady at 3.0 per cent, implying an end to its rate-cutting cycle.
The central bankers’ anti-inflation campaign was highlighted late on Monday when US Federal Reserve chairman Ben Bernanke reiterated the Fed’s mission to prevent soaring fuel and food costs from raising consumer expectations of ongoing prices rises.
Surprisingly, Mr Bernanke played down the problems of a US economy hit by a housing market slump and kept the focus on inflation given oil prices are near all-time highs.
“Although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,” Mr Bernanke told a conference in Boston.
“The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations.”
European Central Bank (ECB) chief Jean-Claude Trichet, who shocked markets last week with an announcement that ECB rates could rise in July, also reiterated his comments on Monday.
“What I said was entirely inspired by this necessity to anchor inflation expectations,” he told a forum in Paris on Monday, referring to last Thursday’s news conference when the ECB president announced that a rate rise was possible next month if not a certainty.
Other officials were also preoccupied with putting a strangle-hold on inflation now before expectations of accelerated price rises become embedded in the global economy.
ECB governing council member Athanasios Orphanides said yesterday that inflation expectations were a primary consideration for central banks. – (Reuters)
