The President of the European Central Bank (ECB) said yesterday that inflation could explode without action being taken to quell price pressures. Jean-Claude Trichet's comments cemented expectations that the ECB will press ahead today with a controversial increase in eurozone interest rates.

In his bluntest signal yet that the ECB will defy political pressure, led by President Sarkozy of France, 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 the German weekly Die Zeit, left little doubt that the ECB will order a quarter-point rise in eurozone rates to 4.25 per cent.

The latest figures showed that the cost of goods leaving eurozone factories rose more sharply than expected. 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. They were driven up by soaring energy costs, which were 4.1 per cent higher in May, and up by 18.2 per cent on a year earlier.

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

This week data showed that eurozone consumer price inflation had risen to a record 4 per cent in June. 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.

Economists said that Mr Trichet may seek to underline the ECB's determination to curb inflation by leaving the door open to a further rate rise before the end of the year.

Futures markets are pricing in a significant chance of two rate rises before the year is out, although 77 out of 81 European economists polled by Reuters expect that today's likely rate rise will be a one-off until next year.

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