The European Central Bank (ECB) would have to run a more restrictive monetary policy if current inflationary effects fed through into higher wage settlements, Governing Council member Mr Axel Weber said today.
Mr Weber said that the recent rise in inflation and in inflation expectations were temporary and that he expected price stability to be maintained in the medium term.
"We are not worried, but we are vigilant," said Mr Weber, who also is president of the Bundesbank.
Inflation rose by 2.5 per cent in May, mainly on the back of higher oil prices. But increases in taxes and tobacco costs also have put temporary upward pressure on the euro zone's Harmonised Index of Consumer Prices in recent months.
Strong global growth which is spurring euro zone recovery also has caused roughly a 100 basis point increase in the inflation premium of certain bonds.
Mr Weber said these increases in both in inflation and inflationary expectations must not lead to so-called second round effects of higher wage settlements.
"That would be a worrisome development. We must watch very closely to see how we would react. Tangentially, this would lead to a more restrictive approach (toward monetary policy)," he said