Central banks face criticism as inflation fears tie their hands

France's Finance Minister has launched an attack on the interest rate policy of the European Central Bank, amid growing concern about policymakers' inability to combat an economic slowdown in the face of rising inflation.

Christine Lagarde, appointed by President Nicolas Sarkozy as Finance Minister last year, told the G8 finance ministers' meeting in Japan that central banks should not focus solely on the battle against inflation.

Mme Lagarde's remarks came as Paul Tucker, a senior Bank of England official, warned of the UK's battle against inflation, and new figures released by the US suggested it is now facing a lethal combination of higher headline inflation and flagging consumer sentiment, which has collapsed to its lowest level since 1980.

Mme Lagarde said that the ECB, which has repeatedly emphasised its determination to tackle inflation, should "be careful of an economic slowdown that could be induced by an interest-rate increase". She added: "There's not just the inflation factor that must be taken into account."

Although conflicting signals have emerged from the ECB over recent weeks, there has been a general expectation that the relative strength of the European economy might lead the ECB's council to raise rates at its next meeting in July. Eurozone rates have been kept on hold at 4 per cent for a year now, with policymakers caught between fear of recession and anxiety about inflation.

However, last week, the ECB's president, Jean-Claude Trichet, said that the ECB was "in a state of heightened alertness" over rising prices and "would act in a firm and timely manner". Market expectations are now for eurozone rates to follow the global trend higher. Analysts anticipate two rises of a quarter percentage point each by the Ecb this year.

M. Sarkozy has been consistently hostile to the ECB's policy, saying soon after he was elected that the single European currency should be "put at the service" of growth and jobs. The German Chancellor, Angel Merkel, and Spanish Prime Minister, Jose Luis Rodriguez Zapatero, have also been critical of the ECB's stance, and warned thatM. Trichet should be more careful with his comments.

Mr Tucker, a possible candidate for deputy governor and currently the Bank of England's director for markets, also struck a more hawkish tone in remarks released yesterday. Mr Tucker said: "The strategy to date has been clear: to offset part but not all of the shock to demand, consistent with an overriding determination to maintain medium-term inflation expectations anchored to the 2 per cent target."

Inflation expectations are currently much higher than that, and the consumer price index to be published on Tuesday will almost certainly prompt a letter of explanation from the Governor of the Bank to the Chancellor to explain why inflation has exceeded 3 per cent.

A tougher stance has also been signalled by the US Fed chairman, Ben Bernanke, with the 0.2 per cent rise in inflation in May unveiled yesterday unlikely to alter that view. However, the collapse of US consumer confidence suggests that American rates are likely to be left on hold rather than raised.

Arts and Entertainment
Eye of the beholder? 'Concrete lasagne' Preston bus station
architectureWhich monstrosities should be nominated for the Dead Prize?
Lizards, such as Iguanas (pictured), have a unique pattern of tissue growth
Anna Nicole Smith died of an accidental overdose in 2007
Life and Style
food + drink
Arts and Entertainment
'The Great British Bake Off' showcases food at its most sumptuous
tvReview: Bread-making skills of the Bake Off hopefuls put to the test
ebooksAn evocation of the conflict through the eyes of those who lived through it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Quantitative Analyst (Financial Services, Graduate, SQL, VBA)

£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...

Application Support Engineer (C++, .NET, VB, Perl, Bash, SQL)

Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...

AIFMD Business Analyst / Consultant - Investment Management

£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...

Business Analyst Solvency II SME (Pillar 1, 2 & 3) Insurance

£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home