BRUSSELS (AFP) — European Central Bank head Jean-Claude Trichet distanced himself Wednesday from suggestions of a series of interest rate rises in the eurozone ahead of an expected 25-basis-point hike next month.
"I did not say that we would envisage a series of increases, I did not say that," Trichet told the European parliament.
"I said we could decide to move our rates by a small amount in our next meeting in order to secure the solid anchoring of price expectations."
His remarks to the Committee on Economic and Monetary Affairs of the European Parliament in Brussels came amid widespread expectations that the ECB will raise its key rate by a quarter of a point to 4.25 percent on July 3.
The bank finds itself battling eurozone inflation, which hit a record 3.7 percent in May, at a time when growth shows signs of slowing sharply.
Both in large part are a result of high oil prices, which Trichet said were not caused first and foremost by speculation, as has been suggested by officials from the Organisation of Petroleum Exporting Countries (OPEC).
Trichet said that the most recent price shock resulted above all from rising demand, with tighter supplies and speculation playing a secondary role.
"We had a phenomenon that was obviously demand driven in comparison with what we had in the previous oil shocks that were much more supply driven," Trichet told the European parliament.
"There are the three elements and we have to be as attentive as possible to disentangle the three elements," Trichet said.
While the ECB was focused on keeping inflation just below 2.0 percent in the medium term, which it defines as around 18 months, it did not appear ready to keep raising the cost of borrowing as high energy and food prices pushed inflation higher.
Regarding the longer term outlook, the bank's governing council which sets monetary policy never committed itself in advance, Trichet stressed.
Trichet told deputies that the ECB's governing council was in a state of "heightened alertness" because inflation could increase further.
Central banks "have to deliver price stability," he stressed.
The risk that inflation could trigger wages to rise in turn, creating a devastating inflation spiral, "is particularly acute," Trichet warned.
In Paris, French central bank governor Christian Noyer, who sits on the ECB governing council, said that such a spiral was "exactly what happened in the 1970s and we don't want to commit those errors again."
The ECB must ensure stable prices in a region of 320 million people and Trichet has said repeatedly that long-term growth is best served by making sure expectations of further price rises are kept in check.
He said Wednesday that the governing council "expects inflation to remain high for some time to come, before moderating only gradually in 2009."
In Frankfurt meanwhile, the ECB announced that it had cancelled a tender for a general contractor to build its new headquarters because the sole bid considerably exceeded the bank's estimated budget.
The bank had initially estimated the cost of its new headquarters at around 500 million euros at 2005 prices (780 million dollars at current rates).
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