ECB: Keeping Prices Cool isn’t Trade-off against Growth or Jobs Creation

European Central Bank (ECB) Prsesident Jean-Claude Trichet on Friday defended the bank's focus on keeping inflation cool, saying price stability was not a trade-off against economic growth or job creation.

Soaring global prices of energy and food drove euro-zone inflation to record levels this spring. At the same time the euro economy is cycling down this year as a credit crisis hurts borrowing and a US. Slowdown dampens exports and investment.

The ECB has kept its key interest rate on hold at 4 percent since last June, contrary to the U.S. Federal Reserve and the Bank of England which have slashed borrowing costs to ease conditions for bank finding it hard to loan money in the wake of financial market crisis.

The bank has instead relied on injecting large amounts of money into credit market to help financial institution keeps lending. Trichet said there was an emerging consensus that stable prices would help reduce volatility in economic output – which is affected by rising labor and energy costs.

He claimed the bank's effort to limit price volatility had already been successful in calming any large swings in output. "I don't think there is a trade-off between price stability and job creation and growth in the medium to longterm, "he said after giving a speech at the Brussels Economic Forum. "I think that was the credo before the major wave of inflation but I don't think that's the case now".

Trichet said the ECB was closely watching wage negotiations in the euro area, warning that avoiding large pay hikes was "essential to preserve price stability in the medium term and, in turn, the purchasing power of all euro area citizens.

Such words have angered workers who say they deserve more pay as a reward from the recent economic boom and to help them cope with higher heating, transport and grocery bills.

He said other central banks were also behind the focus on calming inflation. "Now we have a worldwide consensus, almost a total consensus in seeing that it's important to stabilize medium-term prices" he said.

Trichet repeated the ECB's mantra that price stability was its primary goal saying "there is no place for complacency". The credit crisis has changed the usual landscape for central bankers, in particular the ECB.