PARIS (MktNews) - Inflation tensions in Europe are worrisome and a further rise in harmonised consumer prices (HICP) cannot be ruled out, Bundesbank President Ernst Welteke said in a newspaper interview released Friday.
Calls for the ECB to lower rates "are not appropriate, since the ECB in not directly responsible for economic growth or employment, in contrast to the US Federal Reserve," Welteke, a member of the ECB Governing Council, told the French daily Le Monde
Welteke said he was "convinced" the euro is still undervalued but also that investor confidence in the single currency would return over time.
EMU inflation tensions "have of course declined, but higher inflation numbers cannot be ruled out entirely," he warned. "We continue to see price risks from oil price trends, the (euro) exchange rate and in food prices in the wake of the agricultural crises."
"If you look at current inflationary pressures in Europe, concerns are justified," he said, citing the seven-year high in preliminary German inflation for April showing a 2.8% annual rate.
"As long as we see inflation risks, we cannot lend support to macroeconomic (growth) goals," he added.
Welteke warned that altering the priorities of the ECB could only undermine its credibility and confidence in the euro "especially in Germany," adding that recent comments by EU finance ministers have not helped.
"Nobody knows the appropriate level (of the euro)" he conceded. "But I am convinced the euro remains undervalued currently," he said, citing New York hotel prices double those of Frankfurt.
While political reasons and the "cacophony" within the European Union may have weakened the euro at times, the more fundamental explanation lies in the shift of capital raised on European bond markets to the U.S. investments, given strong growth prospects there last year.
Investor confidence in the euro may also weakened by doubts about the success of the EMU, he noted. "But I am sure this will change over time."