EU's Bajuk sounds warning on European inflation

WASHINGTON, April 12 (Reuters) - It is vital that price pressures generated by rising commodity prices do not become entrenched in European inflation expectations, the chairman of European Union finance ministers said on Saturday.

Slovenia's Andrej Bajuk, whose country currently holds the rotating presidency of the EU, told the International Monetary and Financial Committee the bloc was relatively well placed to weather global headwinds but sounded a warning on inflation.

"The outlook for inflation in 2008 carries upward risks, taking into account the recent sharp rises in oil and food price assumptions, but is expected to moderate gradually later in the year because of reduced inflationary impulses from commodity prices," he said.

"In this context, it should be ensured that inflation induced by higher prices of oil, food and other commodities does not become entrenched in inflation expectations."

He said it was important to avoid second-round effects on wages and prices, given high capacity utilisation and fairly tight labour markets, which might further fuel inflation.

(Reporting by Swaha Pattanaik, Editing by Chizu Nomiyama)