WORLD> Europe
Policy-makers call inflation top threat
(Agencies)
Updated: 2008-06-17 08:37

Floods across America's Midwest, the country's prime cropland, exacerbated supply concerns and boosted the price of corn above $8 a bushel for the first time before closing down at $7.87.

Competing forces of higher human and animal consumption of grains, plus bio-fuel production, are keeping prices elevated.

Rising prices are helping fuel the economic renaissance in emerging markets. But they are also strengthening inflation pressures, and central banks in these markets have already started to raise interest rates to keep them in check.

Politicians worry inflation will undermine economic growth. Brazilian President Luiz Inacio Lula da Silva on Monday told investors in Sao Paulo that the fight remains a top priority.

In the United States, the president of the Richmond Federal Reserve Bank, Jeffrey Lacker, told business and community leaders the US central bank can keep interest rates on hold for the moment but should not leave them too low for too long.

Inflation was the biggest worry for Asia, Asian Development Bank Managing Director-General Rajat Nag told Reuters on Sunday in Kuala Lumpur, because it threatens to erode the gains made in fighting poverty over the last two decades.

Britain's leading employers' group said on Monday that rising oil and food prices and feeble consumer demand would slow the country's economy to its weakest growth rate in almost two decades next year.

Recent comments from US Federal Reserve and ECB officials have raised market expectations the world's central banks would start to raise interest rates to try to calm price pressures.

ECB Governing Council member Nout Wellink kept up the bank's recent hawkish rhetoric on Monday, saying after the release of euro zone inflation data that keeping price growth under control was the bank's top priority.

He repeated the ECB's message about the possibility of a rate rise in July and joined other ECB governors in playing down the possibility of a series of ECB rate increases. But some economists believe more could materialize.

"The message has been clear enough but it's too early to speculate on the next half of the year," Wellink told reporters on the sidelines of a microfinance conference in Amsterdam.

Similarly hawkish messages came from ECB Vice President Lucas Papademos and ECB Executive Board Member Gertrude Tumpel-Gugerell.

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