/wwwq.fxserver.com/ FRANKFURT - The European Central Bank is concerned that euro-zone inflation could prove harder to tame than previously expected, a source close to the bank's policy-setting governing council said.
"There's slightly greater uncertainty, not about the decline in inflation in the next few quarters, but with the pace" of that decline to more acceptable levels, the source said.
The comments appear to send the strongest signal yet that the ECB, which sees its primary task as keeping a lid on inflation, will not cut its key interest rates when the governing council hold its regular monthly policy-making meeting on Thursday.
The ECB defines price stability as consumer price increases of no more than 2.0% on a 12-month basis. But area-wide inflation is currently above that, standing at an annual rate of 2.4% in March and 2.1% in April. So far, the ECB has repeatedly said it expected euro-zone inflation to slow to below 2.0% during the course of this year.
But the source said that the ECB was "somewhat more uncertain" about how quickly inflation would fall and stabilise below the 2.0-percent stability level.
In an address to the European Parliament last week, the ECB's deputy chief Lucas Papademos had reiterated the bank's belief that euro-zone inflation would gradually fall below 2.0%.
But the source noted that Papademos had not specified when that might happen. "If you do fairly straightforward, rather mechanical projections about the evolution of prices in the coming quarters, (inflation) seems to be declining a little bit more slowly" than expected, the source said.
This was attributable not only to the slow rate of the declin e in the price of unprocessed foods, but also "some apparent sluggishness in general, which is a little bit greater than had been estimated a few months ago".
Regarding growth prospects for the 12-country euro zone, the source said that little had changed in the past two months.
"On the whole, the situation has not changed dramatically if you take into account all risks — geopolitical risks, internal EU risks, global risks. The overall balance of risks has not changed in such a big way compared to two months ago."
That could also be a signal that the ECB would maintain the status quo on interest rates this week.
Indeed, most economists expect the ECB to hold its central "refi" refinancing rate steady at 2.50% at its meeting on Thursday and the bank will wait until June to ease montary conditions in the single currency area. According to a poll of 30 economists