He added that Germany's positive economic outlook had not been marred by the surprise fall in Germany's Ifo business climate index for July. Economists interpreted his speech as heralding an ECB rate hike as soon as next Thursday. His comments followed news of higher-than-expected import price inflation in Germany and supported the euro which retested its day's highs around $0.9040 as dealers bet on a rate rise. Import prices rose 0.4 percent month-on-month and 10.9 percent year-on-year, driven by oil price hikes and the weak euro, official data showed.

The figures overshadowed a modest slowdown in German consumer price inflation to 1.8 percent in August from 1.9 percent which economists said was likely to be temporary. Bundesbank council member Franz-Christoph Zeitler said the slowdown brought no relief on the inflation front because the figures did not include a sharp rise in oil prices during August, or reflect the most recent fall in the euro. ECB Displeased at Euro fallI Welteke said the ECB was "anything but pleased" about the euro's exchange rate, which hit three-month lows just above $0.89 this week after the July Ifo index fall sparked fears that Europe's largest economy was slowing down.

"This increases sharply the possibility of a rate hike as early as August 31," said Lorenzo Codogno, senior economist at Bank of America in London. "Welteke has been dovish in the past and so this statement suggests that even among the dovish members there is sentiment for a rate hike perhaps as soon as possible." The ECB, concerned that recent increases in headline inflation as a result of the weak euro and oil price gains may result in a wage-price spiral, has adopted an increasingly hawkish tone in recent weeks.

Welteke said it was essential to counter price risks "as soon as possible" to ensure that the euro zone's recovery could continue unhindered by inflationary expectations. The remarks from Welteke, considered usually more reluctant to raise rates than many of his peers at the ECB, are set to fuel expectations that the ECB will raise its benchmark 4.25 percent minimum bidding rate by a quarter point or more as soon as August 31, when the council reconvenes after a summer break. Welteke said that not all the Bundesbank's council member agreed on the extent of risks to price stability. But ECB officials have left no doubt in recent weeks about their concern about inflation. Welteke, speaking at a ceremony of the North Rhine-Westphalia state central bank, said on Friday. "

The slightly dampened Ifo business climate index does not mean a turnaround in the favourable fundamental trend." Welteke said the Ifo index, which surprised markets by falling for the second month in a row in July, had been hit by a fall in car registrations.