Inflation still a major global risk: ECB Prez

Davos, Switzerland, Jan 27: Inflation is still a major global risk and central banks around the world must remain ''very, very alert'' on price risks, European Central Bank President Jean-Claude Trichet said on Saturday.

''We make an assumption that central banks around the world are doing their jobs. It's true that we are credible in this domain,'' Trichet told a panel discussion at the World Economic Forum meeting in Davos.

''We have to remain very, very alert. That (inflation) is a major global risk,'' he said.

Trichet also warned of risks to the world from failure in the Doha round of trade talks, potential changes to the oil price and a disorderly unwinding of global economic imbalances.

''(On trade), we are not fortress. We are open. It's a very big risk, and of course we call for the success of the (Doha) negotiations,'' Trichet said. ''The oil issue, which is still there, still is a big risk, and certainly disorderly unwinding of global imbalances.'' Asked about currencies, Trichet said he would stick to the last statement made by the Group of Seven industrialised nations which has said excessive volatility and disorderly moves in exchange rates are unwelcome.

Trichet also said the euro zone economy was doing better than expected but called for structural reforms.

''We had very good year last year. We are likely close to potential (economic growth) as regards the present year, which is probably around 2 percent, maybe more than 2 percent, which is over our potential (according to consensus),'' he said.

''We have a lot to do in terms of improving our productivity and that calls for more structural reforms,'' Trichet added, saying productivity was lagging the United States.

U.S. Deputy Treasury Secretary Robert Kimmit said the outlook for the world's largest economy was positive after a ''significant kickup'' in the fourth quarter.

''We will have solid growth in 2007, with ... moderate inflation,'' he told the panel, adding that softness in the U.S.

housing market, which hampered growth last year, was now showing signs of stabilising.

He added that the U.S. budget, due to be presented in February, would aim to balance the budget by 2012 and he called on other countries to smooth out imbalances in their economies.

''We would like to see exchange rate flexibility in emerging economies especially with large current account surpluses such as China,'' he said. ''We want to see demand-led growth in Japan, the euro zone. This will require structural adjustment.'' Kimmit also warned that there was increasing protectionism in the world and urged countries to be open to investment.

''A top priority is (a) global trade agreement. We must have political will. We are positive about that,'' he said.

REUTERS CS DS1401