OECD chief economist Jean-Philippe Cotis said today euro zone inflation remains "well under control". There is no indication that the rise in energy prices is triggering inflationary wage increases, and core inflation is running at 1.6-1.7 pct, well below headline inflation, Cotis told a news briefing. Cotis said he does not expect next year's rise in the German VAT rate to derail the economic recovery in Germany and the euro zone. While it is likely to weigh on growth in the short term, the VAT increase is not expected to lead to a fall in German GDP in the first quarter or the first half of next year, contrary to some predictions, he said. Cotis said the German VAT hike is likely to lead to a slight pick-up in inflation in the euro zone as a whole but this is likely to be "quite manageable". He reiterated that the European Central Bank should gradually raise interest rates to a neutral level, following two consecutive quarters in which euro-zone growth has been above its long-term trend rate. "This opens the way for certain tightening of monetary policy," he said. But he declined to give a precise figure for a "neutral" level for ECB rates. He said a neutral rate is one which no longer stimulates economic activity and it can therefore only be determined for any given period with hindsight. "But we are not there yet, in all likelihood," he said. The ECB has hiked its key rate to 3.00 pct from 2.00 pct over the past nine months, and economists expect it to raise the rate to 3.50 pct by year-end. The euro zone recovery is now well under way, and while growth is likely to moderate after the strong first half, it is expected to continue at a reasonable pace, said Cotis. Meanwhile, the UK economy continues to enjoy a sustained rate of growth with limited inflationary pressures, he said. "It's surprising how stable the UK economy has been over the past few years," he said. "The UK economy has been a model case of minimising output fluctuations while maintaining price stability," he said. He said wage moderation may need to be complemented by a tightening of monetary policy at some stage in the future, but he declined to speculate on the next Bank of England rate move. Cotis said economies which have experienced robust growth have proved resilient to the high level of oil prices, and they are likely to continue to be able to cope well with this in future. But oil costs may become more of a problem for economies which have been lagging behind global growth, he said. Meanwhile, the recent improvement in domestic demand in the euro zone and Japan may help reduce the risk of an abrupt correction of global current account imbalances, said Cotis.