FRANKFURT (AFX) - Interest rates in the euro zone remain "appropriate to ensure that the euro area economy will be able to maintain price stability in the medium term," European Central Bank president Wim Duisenberg said at a press conference.
Inflation pressures in the euro zone will ease in the medium term, although this is likely "for some time to come" to be overshadowed by short-term increases in inflation due oil prices and the impact of animal diseases on food prices in the region, Duisenberg said. Wage developments have so far been "satisfactory," he said, although looking forward there is "on-going concern about the emergence of second-round effects, so that wage developments need to be monitored very closely," he said.
The recent rise in HICP inflation was due mainly to developments in unprocessed food prices, the rebound in oil prices and increases in indirect taxes and administered prices. The pass-through of the indirect effects of past rises in oil prices and last year's depreciation of the euro have played a role, he said.
"All these factors will also show an upward effect in May. However, if no further unfavourable price shocks occur, this upward pressure should soon start to diminish, making it likely that HICP inflation will start to fall in the course of the year below 2 pct in 2002," he said.
Recent movements in the exchange rate also pose an upward risk to price stability, he said, and "we have a strong interest in a strong euro," he said. Preserving price stability is the "best contribution monetary policy can make" to the expansion of growth in the euro area economy, he said.