13 June 2002, 14:10 Eurozone inflation will hover around 2% in the second half of 2002
FRANKFURT (MktNews) - Eurozone inflation will hover around 2% in
the second half of 2002, but the short-term outlook for prices depends
heavily on oil prices developments as well as the euro's exchange rate,
the ECB said in its monthly report for June released Thursday.
"Looking ahead, the short-term outlook for inflation very much
depends on the developments in oil prices and, in part, on the euro
exchange rate," the ECB said.
"While a further decline in the annual rate of overall HICP
inflation is possible in the short run, barring unexpected developments,
inflation rates are likely to hover around 2% in the second half of
2002," it said.
The ECB lower food prices might help dampen inflation in coming
months.
"As regards other factors, unprocessed food prices could contribute
to lower rates of inflation if there is a further unwinding of the
earlier rises following food-related health concerns in 2001 and the
adverse weather conditions at the beginning of 2002," it said.
The ECB reiterated that the inflation outlook next year depends in
particular on wage developments.
"Apart from the short-term developments of these more volatile
items, domestic price pressures will pay a key role in the inflation
outlook, particularly wage developments," it said.
In this context, the ECB warned that price rises related to
temporary shocks must not be allowed to become entrenched, triggering
excessive wage increases.
"In this respect it will be important to recognise the temporary
nature of the shocks to HICP inflation and to ensure that this does not
lead to an entrenchment of inflation expectations feeding into wage
agreements," it concluded.
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