Sept. 17 (Bloomberg) -- European Central Bank council member John Hurley said inflation in the dozen nations sharing the euro isn't a ``great concern,'' suggesting he sees no need to raise interest rates for now.

``Inflation is certainly not a great concern, but there are some risks that we have to keep an eye on,'' Hurley, who also heads Ireland's central bank, said in an interview yesterday after a panel discussion in Frankfurt. While ``oil is clearly one of them,'' the ECB still expects inflation to slow below its 2 percent limit next year, he said.

ECB officials including President Jean-Claude Trichet and Chief Economist Otmar Issing this week said the ECB needs to show ``vigilance'' against inflation. Consumer prices rose 2.3 percent in August, the fourth month in a row that inflation exceeded the bank's ceiling after the cost of crude oil surged to a record.

Hurley's comments ``really suggest that he doesn't see an urgent need to discuss a rate rise,'' said Holger Schmieding, co- head of European economics at Banc of America Securities in London. ``He wants to wait and see what happens.''

Investors trimmed their expectations for higher interest rates, futures trading suggests. The yield on the March contract on Europe's three-month Euribor rate fell as low as 2.40 percent at 10:14 a.m. in Frankfurt from 2.42 percent before the comments were published.

The European contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's key rate since the euro's start in 1999. One basis point is 0.01 percentage point.

`Least Aggressive'

Issing this week stoked investors' speculation that the ECB is preparing the ground for higher rates when he said that the central bank would raise borrowing costs should higher energy costs lead to a lasting increase in inflation. A month ago, the yield on the Euribor March contract was 2.31 percent.

Hurley said second-round wage effects caused by the higher oil prices and some government tax measures may still pose a risk to the ECB's inflation outlook. German producer prices rose 2.2 percent in August from a year earlier, the biggest increase in three years, a government report showed today.

Even so, Hurley's ``comments are the least aggressive of any from ECB Governing Council members made this week,'' said Julian Callow, an economist at Barclays Capital in London.

Issing told reporters yesterday that second-round effects ``are not visible'' for now and that his interest rate comments, published in Die Welt on Sunday, were based on a hypothetical situation.

Continued Recovery

For now, the ECB expects inflation to slow to about 1.8 percent in 2005 from an estimated 2.2 percent this year, according to forecasts published on Sept. 2.

``The ECB is comfortable with the expectation that inflation will slow under 2 percent next year,'' said Hurley at an event organized by the ECB and Poland's central bank. ``Growth is continuing.''

Trichet also underlined his expectation this week that the economic recovery can weather a 60 percent increase in the price of crude over the past year. Speaking in Basel, Switzerland, on Monday, Trichet said the global recovery is ``confirmed'' and may have strengthened in the third quarter.

The ECB expects the euro-region economy to grow about 2.3 percent next year, accelerating from around 1.9 percent in 2004. Industrial output in the region rose 0.4 percent in July compared with a month earlier, when it declined 0.2 percent.

To contact the reporter on this story: John Fraher in Frankfurt jfraher@bloomberg.net.

Last Updated: September 17, 2004 06:24 EDT