Central Bank - Trichet says dampening of inflation from globalisation may be waning

Fri, Feb 15 2008, 09:34 GMT
http://www.afxnews.com

FRANKFURT (Thomson Financial) - European Central Bank president Jean-Claude Trichet said the dampening effect on inflation from globalisation may be coming to an end.

"There have been recently signals that the disinflationary impact of low-cost countries on euro area import prices might be coming to an end due to increasing inflationary pressures in those countries," he said.

"The recent increases in the prices of imports from low-cost countries might be interpreted as a sign that the downward impact from these countries is waning. Moreover, from a forward looking perspective, price pressures on soft commodities... appear to be a potential source of strong adverse relative price shocks. These developments clearly represent upside risks to price stability," he said in a lecture last night at the Barcelona Graduate School of Economics.

A text of the lecture was published by the ECB.

Trichet said globalisation has led to conflicting forces on euro zone inflation, with disinflation in manufactured goods prices partly offset by a strong acceleration in commodities prices as a result of rapid growth in emerging economies.

The net effect is estimated to have been a small dampening impact on euro zone inflation of up to 0.3 percentage points per annum over the last five to ten years, he said.

ECB research suggests that the euro zone's openness to imports had a a direct dampening effect on euro zone producer price inflation of 0.1-1.0 percentage points per annum for the manufacturing sector in the 1996-2004 period, and a dampening impact on consumer price inflation of 0.05-0.2 percentage points, he said.