The European Central Bank (ECB) has warned that inflation in the euro zone may rise higher than expected and hinted that interest rates could rise soon.

Speaking in Frankfurt after a meeting of the bank's governing council, ECB president Mr Wim Duisenberg said he could no longer predict with confidence that inflation would be below 2 per cent this year.

"I would be inclined to say that the risks are indeed on the upside rather than the downside," he said.

Yesterday's meeting left interest rates unchanged at 3.25 per cent, but analysts interpreted Mr Duisenberg's remarks as a hint that rates could rise by 0.25 per cent as early as next month.

The ECB governing council meeting came as a survey of purchasing managers showed a sudden rise in raw materials prices in the euro zone.

The Reuters survey suggests that economic recovery is well under way, but Mr Duisenberg acknowledged that the sharp rise in prices was a cause for concern to the ECB.

Mr Duisenberg identified high oil prices and the impact on prices of the euro cash changeover as factors creating a sense of uncertainty about euro-zone inflation. He warned that wage restraint was essential if inflation was to remain low and the economy was to recover.

"The outcome of the ongoing wage negotiations in some regions of the euro area could become a matter of concern.

"Excessive wage increases could create additional cost pressure with potential consequences not only for prices but also - to an even greater extent - for employment creation and real GDP growth," he said.

Mr Duisenberg expressed concern about the size of the US's current account deficit, which stands at more than 4 per cent of GDP.

"That is a risk to the world economy. I hope it can be contained in due time because, over time, I regard it as unsustainable," he said.