Clear signs of inflation threat in emerging world: Trichet

7th March 2011, Comments 0 comments

Emerging economies are facing clear signs of inflationary threat, European Central Bank chief Jean-Claude Trichet said Monday after a meeting with fellow central bankers.

"We see clearly that there are inflationary threats that are particularly visible in the emerging economy area," said Trichet, following the meeting at the Bank for International Settlements.

The EU central banker said his counterparts are "all very keen on anchoring inflationary expectations.

"There is a sense of unity of purpose" on this issue, he stressed.

Many robust emerging economies have escaped the 2008 global financial crisis largely unscathed, unlike their Western counterparts, but they now face a danger of overheating due to low interest rates and inflows of capital from depressed Western economies.

On Saturday, Chinese Premier Wen Jiabao said that reining in prices is China's top priority in 2011, with food and other commodities all rising sharply.

Increasing violence in Libya and wider unrest in the Arab world has pushed oil prices steadily higher and back to levels last seen before the bust in 2008.

On Monday, oil prices struck 2.5-year highs with New York's main contract, light sweet crude for delivery in April, hitting $106.82 a barrel -- the highest level since September 2008.

Trichet noted that in the medium- to long-term, it is necessary to reduce global imbalances in order to cut the risk of inflation.

"It is very very important that ... we could have a progressive reduction of imbalances, which is certainly one of the conditions for the global economy to be as sustainable in the sense of being non-inflationary and being balanced," Trichet said.

China's huge trade surplus and foreign currency reserves are viewed by Western powers as the most significant sources of global imbalances.

The United States and other Western powers accuse China of holding down its currency to boost Chinese exports. China denies any such manipulation, blaming the imbalance on structural problems in its trade partners' economies.

© 2011 AFP

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