Fears of rising prices across Europe as retailers cash in on the change to the euro have been confounded, according to the head of the European Central Bank.

"There has been little evidence so far of the changeover affecting the average level of prices," he told an audience of financial journalists in Frankfurt, "and we do not expect any noticeable effect on the average price leve in the future."

Inflation should stay safely below the 2% annual maximum the ECB has set itself throughout 2002 and "for the foreseeable future", he said.

And Mr Duisenberg reiterated his sunny prognosis for the economy in the 12-nation euro area, predicting a modest recovery in 2002 after a subdued first few months of the year.

"There are indications pointing to a gradual economic recovery in the euro area in the course of this year... signalled by financial market developments and by recent survey data, which indicate that the decline in confidence in the euro area may have bottomed out."

Crying wolf?

Mr Duisenberg chided both the public and the media for hunting out any and every hint that shopkeepers could have used the switch to the euro as an excuse to round up prices and hike their margins.

"There is a lot of talk by the public and the media about the potential inflation effects stemming from the rounding towards psychologically attractive prices," Mr Duisenberg said.

"But we should expect such rounding to be in both directions, up and down."

The continuing high levels of competition in retail would see to that, he said..