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Trichet says commodity prices not pushing wages

23 January 2011, 23:33 CET
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(WASHINGTON) - European Central Bank President Jean-Claude Trichet said in an interview published Sunday he does not see commodity price increases leading to a push for higher wages.

Trichet, in an interview with the Wall Street Journal, maintained his view that the best route to economic recovery in the euro zone is through budget austerity and management of inflation pressures.

"All central banks, in periods like this where you have inflationary threats that are coming from commodities, have to... be very careful that there are no second-round effects" on domestic prices, Trichet said in an interview from his office at ECB headquarters in Frankfurt.

Trichet appears to want to manage inflation expectations. Workers who see commodity price increases as long-term may in turn seek pay hikes.

"At this stage, we do not see" longer-term effects, he said, "and everybody knows we would not let second-round effects materialize."

Trichet, speaking in advance of the annual meeting of the World Economic Forum in Davos, Switzerland, this week, indicated to the Journal that he will not allow economic weakness in Ireland and Greece delay ECB interest-rate increases if he sees price instability.

Austerity initiatives in Ireland and Greece, among other places, are pushing up unemployment, but Trichet dismissed critics such as the United Nations, which last week warned that the budget measures risk creating "a renewed economic downturn" in Europe.

"I do not buy the very simple reasoning that would suggest that pursuing sounder fiscal policy would hamper growth," Trichet said.

The United States, with the support of Federal Reserve Chairman Ben Bernanke, has chosen stimulus spending to improve its economy, in contrast to some struggling European countries.

"It's not for me to give a lecture to other advanced economies," he said.

Trichet's eight-year term ends in October.

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