Sharp increases in prices at the end of 2007 must not be allowed to drive inflationary pay increases in Europe, the German central bank warned Saturday, after inflation data showed prices rising more steeply than in a decade, according to dpa. "The current, exceptionally high, rates of inflation in Germany and in the eurozone as a whole should not be allowed to serve as a benchmark in the coming round of pay negotiations," Bundesbank President Axel Weber said. "Upward pressure on prices, caused by exaggerated pay deals can endanger price stability in the medium term," Weber wrote in an article to be published in the Sunday edition of the mass-circulation Bild newspaper. The Governing Council of the European Central Bank (ECB) would act decisively against inflation, said Weber, himself a member of the council. "Money is important for our economy and our society," he said. Weber said the Bundesbank was watching the current price rises "with concern," although he predicted the rate of inflation could ease in the second half of 2008. German price data published Friday put average inflation over 2007 as a whole at 2.2 per cent, the highest level since 1994. Preliminary December inflation came in at 2.8 per cent, driven largely by energy and food costs. The Bundesbank was predicting that prices could rise by 2.3 per cent over 2008, well above the ECB target of 2.0 per cent, provided that wage increases were kept in check, Weber said. He was writing amid universal predictions from German economic institutes and the government that economic growth would slow sharply in the year ahead. The Bundesbank is predicting growth of 1.9 per cent for 2008, well down from above 2.5 per cent recorded this year. Unemployment predictions remain favourable, however, with analysts forecasting a fall from the current seasonally adjusted level of 3.6 million.
