The global economic recovery is on track but monetary authorities have to remain vigilant against inflationary dangers, the G10 central bank governors said today.
Mr Jean-Claude Trichet, chairman for the G10 central bank heads and ECB president, played down the overall impact of historically high oil prices on the economy, saying the high price was a reflection of strong demand, but added that current prices were "much higher than normally appropriate".
"The global recovery is confirmed after some slowing down in the second quarter," Mr Trichet said at a regular meeting of central bankers from the G10 industrialised nations and major emerging markets.
"Most indicators suggest some strengthening in the third quarter," he added in comments that minimised the significance of mixed signals coming from the global growth leader, the United States.
Mr Trichet also gave no signal there would be a pause in the global rate tightening cycle even as markets question whether oil prices, which hit record highs above $48 a barrel in August, will hurt global growth or pose more of an inflationary risk.
"At the global level, I would say that we are confident that the global recovery is confirmed. We are confident that inflation expectations at global level are on track," he said.
"Confidence in maintaining price stability and vigilance remains of the essence," Mr Trichet added when asked about the huge amounts of cheap money lubricating the global upswing.
Mr Trichet said that central bankers from leading industrial nations and emerging markets view the surging oil price as demand driven. They considered that further price gains would not be justified and could harm both growth and inflation.
"So there were very good reasons to encourage all partners to go for a lower price of oil that would be more in line with the fundamentals, with the markets," Mr Trichet said.
China, which will be attending a meeting of Group of Seven finance ministers' and central bankers' meetings in Washington next month, was not discussed in Basel, Mr Trichet said.
As for what message central bankers would take on China's fixed exchange rate peg to those meetings, Mr Trichet referred to the last G7 statement, which said exchange rate flexibility is desirable.