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Commissioner Joaquín Almunia said that the latest inflation figure of 4 per cent in the year to June in the eurozone was “a matter of deep concern.” It was mainly due to increasing energy and commodity prices, caused in turn by the fundamental balance of supply and demand rather than speculation. He also said that the euro was overvalued on the currency markets.
Rates of inflation could be expected to continue at a similar level over the months ahead before beginning to level off, he said. The way to find the right responses was to understand the causes: increased energy and food prices were largely due to a fundamental imbalance of supply and demand. At the same time, he stressed the importance of sticking to goals of improving public finances and enacting structural economic reforms.
Responding to Karsten Hoppenstedt (EPP/DE), who asked about inflation and salaries, Mr Almunia said “There has been a very sensible approach so far; we need to continue to avoid second round effects which are almost imperceptible at the moment.” Wages, he said, should go up in line with productivity: “this is the best way to protect purchasing power and avoid an inflationary spiral.”
Margaritis Schinas (EPP/EL) and Pervenche Berès (PES/FR) asked about the effects of speculation on oil and food prices and about the exchange rate of the euro. “There is speculation, I am not saying there is not, but it is the fundamental elements which have driven up oil prices by 6 times” in recent years, said the Commissioner.
On exchange rates, Mr Almunia said it was impossible in the real world to say exactly what the right rate between currencies should be, but: “My view is that the euro is overvalued; it is too high right now, not too much, in an exaggerated way, but it is perceptibly too high.”
Olle Schmidt (ALDE/SE) asked whether the Irish “no” to the Lisbon Treaty would have a detrimental effect on the euro. Mr Almunia said it would not: the main mechanisms of the Economic and Monetary Union were set out in the Maastricht Treaty, he said. As far as institutional arrangements were concerned, he said earlier, “We have to get the interests of the eurozone expressed clearly to our partners in international forums.” “We are making progress, but we are not there yet.”