The European Central Bank on Thursday voiced caution that high oil prices may weigh on economic growth even as recovery moves ahead. "Any central scenario for future developments is surrounded by significant uncertainty, which at present is related particularly to oil prices," the ECB wrote in its monthly bulletin, repeating its policy statement after the ECB rate meeting last week. "If oil prices were to remain high, or even increase further, they could dampen the strength of the recovery, both inside and outside the euro area." The central bank's 18-member policymaking council at its October 7 meeting decided to keep interest rates steady at 2.00 percent, where they have been since June 2003. Analysts said Trichet's economic assessment had softened markedly from a month ago and the ECB is not planning to end the era of cheap credit soon.
Crude oil prices, which vaulted $54 per barrel to set a new record in New York trade this week, have kept upward pressure on inflation for months, but the ECB has also begun to worry more openly about risks to growth from dear oil. Soaring oil prices have fed rapidly into higher headline inflation, but the ECB said that the risk of second-round effects, in which employees or companies try to raise wages or margins to recoup money spent on higher energy prices, appears to be contained. "Looking further ahead, the available information does not indicate that stronger underlying inflationary pressures are building up domestically," the central bank said. Nevertheless, the ECB said that "strong vigilance" was required in monitoring the ample money supply and all other factors that might pose a risk to future inflation. The monthly bulletin also included commentary on euro zone labour market developments, saying that a rise since the middle of last year in hours worked may be followed by a gradual increase in employment.///www.reuters.com