Expectations of an increase in eurozone interest rates were cemented today with a warning by Jean-Claude Trichet, President of the European Central Bank (ECB), of a growing risk that inflation could “explode.”

In his bluntest signal yet that the ECB will defy political pressure for it to hold fire, Mr Trichet said: “If we are not resolute, there is a risk that inflation will explode. If we act decisively, then we can master the situation.”

His remarks, to Die Zeit, the German weekly, left little doubt that the ECB will tomorrow order a quarter-point rise in eurozone rates to 4.25 per cent.

Expectations that the Frankfurt-based central bank will act were reinforced as further evidence emerged today of mounting inflationary pressures in the 15-nation bloc.

After other data earlier this week showed that eurozone consumer price inflation rose to a record 4 per cent in June, the latest figures for the cost of goods leaving eurozone factories also showed a sharper than expected rise.

Producer output prices rose by 1.2 per cent in May to stand 7.1 per cent up on the same time a year ago, driven by soaring energy costs, which were 4.1 per cent higher in May, and up by 18.2 per cent on the previous year.

“This confirms that price pressure is mounting, but much of this pressure still seems to be coming from oil. So it is the same old story, only worse,” Holger Schmieding, of Bank of America, said.

So-called “core” producer price inflation in the eurozone, which strips out food and energy prices, also picked up pace in May, rising to 3.8 per cent from an April figure of 3.7 per cent.

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