The European Central Bank will revise slightly upward its 2004 and 2005 inflation forecasts in its new quarterly economic projections, central bank officials in the euro zone have said.
"There is a slight change ... it's all relatively marginal," said one central bank official. "The upward trend by 0.1 per cent age point (in inflation), that's correct."
"There are no changes to the growth hypotheses," the official added.
Inflation would rise to a mid-point projection of 2.2 per cent in 2004 and 1.8 per cent for 2005 in the ECB's staff economic projections, to be released tomorrow.
"The oil effect has pushed up inflation by about 0.1 per cent age points this year and next," another euro zone monetary official said.
The ECB press office had no comment on the forecasts, which it said would be released at President Jean-Claude Trichet's news conference after tomorrow's policy meeting.
Surging oil costs are driving euro zone headline inflation firmly above the ECB's two per cent
ceiling with little prospect for quick relief. Already ECB policymakers have warned that inflation will be high until early next year, although they remain confident it will then subside.
Through July, growth was looking better than had been envisaged in the staff's June forecast - especially for 2005 but also marginally for 2004, one monetary official said.
A revival in domestic demand in France and signs of improvements in Germany brightened the euro zone economy. But then crude oil prices hit $48 a barrel in August and now are around $42, casting a shadow over the outlook.
"The rise in petrol prices has basically removed the 'extra' growth, so we return to the previous scenario," one official said. "So I think we'll see the growth outlook more or less as was anticipated before."
As for signs of slowing in the US, China and Japan, officials said data are too recent and fragmented to cause alarm that global growth is ratcheting downward, such that it would hurt the recovery in the euro zone.
Far more important than headline oil costs, however, is their feed-through to wages and broader-based consumer prices - what Mr Trichet calls second-round effects, monetary officials stressed.
Initial signs on the wage front are encouraging for the ECB. German group Siemens has negotiated a longer work week without a pay increase and France is talking of extending its work week. But these are still anecdotal developments rather than firm evidence of a trend.
"It is too limited and not widespread enough," the official said, a view backed by another central bank source.