Europe’s biggest bank accused central bankers of failing to address inflation yesterday and called on them to raise interest rates to curb spending, even if it hurt consumers in the short term.

Michael Geoghegan, chief executive of HSBC, said that some economic decision-makers were ignoring the risk of rocketing inflation because they were keen to support ailing housing markets and preserve a feel-good factor.

Speaking at a conference in Hong Kong, Mr Geoghegan said: “I’m not sure governments at the current time wish to face up to that [inflation risks], but I urge them to because inflation out of control is a very difficult thing to control later.”

He said that Americans had been comforted by low interest rates in the wake of the collapsing housing market and he predicted that US interest rates would not rise until after November’s presidential election. “Inflation is a long-term problem because there’s no long-term will to solve it,” he said.

Markets indicated yesterday that the US interest rate would not fall soon, while European bankers gave warning that eurozone rates would remain high through 2009.

The US is due this week to release data that may give some insight into the direction that the Federal Reserve will take on interest rates. The personal consumption expenditures index, due out on Friday, which will show that inflation is causing shoppers to cut back on spending, is the most important.

In the meantime, short-term interest rate futures indicated that the Fed was likely to keep rates steady until the fourth quarter at least.

Global prices of commodities from rice to oil have risen sharply in recent months, forcing inflation higher and affecting consumer spending. But governments have been reluctant to increase interest rates while bank lending is still stalled and house sales are in the doldrums.

Axel Weber, President of Germany’s Bundesbank and a member of the European Central Bank’s governing council, predicted yesterday that inflation in the eurozone would remain above 3 per cent on average this year. “Also in 2009 it’s not fore-seeable that we’ll return under our inflation target,” Mr Weber said.

He said that he saw no leeway for cutting rates in the fourth quarter. “We must keep open the option of an interest rate rise as long as the danger of inflation becoming entrenched is not fully banished,” he said.

Klaus Liebscher, another ECB Council member and Governor of the Austrian National Bank, was more optimistic. He said that eurozone inflation had not peaked, but should come closer to the target of 2 per cent next year. Mr Liebscher called on unions, businesses and governments to keep inflation in mind. “With the oil price over $130, it would be premature to sound the all-clear,” he said.

In the UK, a report by BDO Stoy Hayward based on Britain’s business confidence surveys showed that business people expect inflation to creep to its highest level since 1992, hitting 3.6 per cent in the third quarter. The Bank of England will vote next Thursday on whether to change the base rate.

Peter Hemington, a partner at BDO Stoy Hayward, said: “Inflation expectations have entered uncharted waters. The consistently high levels of inflation expectations put the Bank of England firmly between a rock and a hard place.”

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