June 1 (Bloomberg) -- The European Central Bank is clear on its obligation to keep prices stable, ECB President Jean-Claude Trichet said in an interview with Spanish newspaper El Pais.

``Our mandate is clear: maintain price stability in the medium term and be credible in this exercise in a way that inflation expectations are firmly anchored,'' he told the Sunday edition of El Pais.

The ECB defines price stability as keeping inflation just below 2 percent ``over the medium term'' and has struggled to meet that goal since taking charge of monetary policy in 1999. The central bank left its key rate at 4 percent on May 10 to try to curb the jump in energy and food prices. Still, the inflation rate in the 15-nation euro economy rose to 3.6 percent, the ninth month it held above the ECB's target.

There are few signs of inflationary pressures abating. Crude oil prices have gained 33 percent this year, reaching a record $135.09 a barrel on May 22. Food commodities have also surged in the last year, boosting how much consumers are paying for staples such as bread and milk. Wheat, corn, rice and soybeans have risen to records this year as stockpiles shrink and demand climbs.

Trichet said any comments made in the interview should not be interpreted as an indication of where interest rates are heading as he and other ECB members are in a blackout period.

Global Solution

He added the financial crisis is global and therefore needs an international solution. ``If we solve the problem on one side of the Atlantic without solving the problem on the other, we will have to go back and adjust the first,'' he said.

Yesterday ECB council member Mario Draghi said record oil prices are dictating the level of borrowing costs.

``The main element of concern remains the continued rise in the price of energy and other commodities,'' Draghi said at the Bank of Italy's annual assembly. This is ``fueling inflation and limiting the direction of monetary policy. Medium-term price stability was and remains the objective.''

Lorenzo Bini Smaghi, an ECB executive board member, said in a speech yesterday in Trento, northern Italy, that inflation in the euro region is ``worrying'' and will stay at current levels for some months before slowing, if the oil price doesn't rise further.

``Based on the data that we have and based on oil-price data, which is very difficult to forecast, we predict inflation will stay at these levels for some months and then come down,'' Bini Smaghi said.

Inflation Challenge

The global rise of oil and commodity prices makes inflation more difficult to manage for central bankers, Nout Wellink, an ECB council member, told Dutch newspaper De Telegraaf.

``Inflation is not `home made,' like it used to be, so it's harder to tackle by a central bank,'' Wellink told the newspaper in an interview published yesterday.

Faster inflation is already eroding confidence among households. European consumer confidence unexpectedly dropped to the lowest in almost three years in May, according to the European Commission in Brussels. In Germany, Europe's largest economy, consumers also grew more pessimistic, a survey released this week by GfK AG showed.

Italy is the worst-performing economy in Europe and barely dodged a fourth recession in a decade. Newly elected Prime Minister Silvio Berlusconi's first act after taking office May 8 was to pass tax cuts on property and overtime pay and offer to freeze mortgage payments for homeowners at risk of default.

Frozen Mortgages

The government agreed last month with ABI, the association of Italian banks, on a plan that gives first-time property owners the chance to freeze mortgage payments at 2006 levels, when the ECB's benchmark rate was 2 percent. The new measures, which take effect Jan. 1, 2009, could affect 1.25 million families that face higher interest payments on variable-rate mortgages.

``Rates in the past were too low,'' Draghi said.

Italy's growth prospects are being further dimmed by the euro's gain against the dollar, which makes its exports more expensive in the U.S., its third-biggest market. The single currency has gained 6 percent in the past six months and trades for about $1.57. Italian exports plunged 1.3 percent in the fourth quarter. The U.S. is the country's No. 3 trading partner.

``The weakness will drag on for at least the current year,'' Draghi said.

To contact the reporters on this story: Sharon Smyth in Madrid at ssmyth2@bloomberg.net. Flavia Krause-Jackson in Rome at fjackson@bloomberg.net

Last Updated: June 1, 2008 08:47 EDT