EU Officials Warn of Price Spiral

BRDO PRI KRANJU, Slovenia -- European officials warned Friday that governments had to act to curb a possible inflation spiral as rising prices increase the risk of hurting people on low incomes.

High prices for oil and food pushed inflation to 3.5 percent in March, far above the European Central Bank's guideline of 2 percent.

European Central Bank President Jean-Claude Trichet signaled a determination to keep interest rates on hold, saying "price stability is something which is essential for the poorest and the most vulnerable of our citizens."

"They cannot protect themselves against inflation," he said after he joined euro finance ministers for talks. "It is extremely important that we understand that moderation today is necessary if we want to deliver price stability in the medium term."

Jean-Claude Juncker, Luxembourg prime minister and head of the euro nations' economic group, said governments had to act because poor people "cannot afford to deal with galloping inflation."

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He and Trichet repeated a call for employers — including governments — to keep wage hikes moderate and in line with productivity growth.

Trichet also turned on automatic price increases linked to the inflation rate, saying they were "a bad thing" that could feed an inflation spiral.

Thousands of trade union members plan to protest Saturday, saying they deserve a pay rise after companies generated high profits from Europe's recent economic growth spurt.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the European Commission would likely increase its target for inflation this year _ stressing he did not see signs of a price spiral so far.

He was more upbeat about growth prospects for the euro currency region than reports that the International Monetary Fund would cut its forecast to 1.4 percent, saying this figure was "on the low side."

But he said he saw more risks of slower growth since February when the EU published its forecast for the euro area to grow 1.8 percent this year and insisted there were positive signs of growth from better economic confidence figures in Germany and France and industrial production statistics.

"We are in a slowdown but growth will be maintained," he said.

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