FRANKFURT. (Reuters). Despite the fact that Euro zone inflation may fall to below 2% in late 2013, European Central Bank officials should be prepared for a worse scenario. They need to avoid making long term policy decisions as upside risks prevail, Klaas Knot from the Dutch government said Tuesday.

Last month’s inflation rose to above 4%, which is twice as high as the ECB’s 2% target. However, the bank has refused to tighten its policy and argued that the inflation rise is caused by transitory forces. Inflation will continue to fall under the bank’s target for the coming years.

Knot, a conservative member on the rate-setting Governing Council made the same case for price pressures that are “largely temporary”, but cautioned that not all of these temporary forces may last.

Knot spoke out in the context of a UBS-hosted panel discussion, “Upside Risks to This Baseline Predominate.” We must also prepare for upside situations.

Knot’s remarks come just weeks ahead of the ECB’s decision on ending a 1.85 billion euro ($2.14 trillion-worth) stimulus scheme – Pandemic Emergency Purchase Programme – and the ECB will likely look at scaling up other tools in order to fill the void.

The ECB shouldn’t be bound by this critical decision for too long, as more persistent inflation may require that policy actions are taken sooner than others think.

Knot stated, “We can’t make long-lasting and unconditional commitments that could end up being inconsistent with the way inflation outlook evolves.”

Knot argued, “After the end of emergency purchases in March next year, a less flexible Asset Purchase Programme (APP) should be the primary tool for the bank. However, the ECB should not close the door to increasing or decreasing bond buying volumes through this program.”

Knot indicated that the effects of past oil price increases and tax hikes will be fading, however supply chain bottlenecks or future price rises could continue to drive inflation.

Knot explained that “these temporary pressures aren’t always short-lived.” In fact, the inflationary pressures derived from these sources can last longer than originally thought.

Also, wages could rise quicker than expected if inflation continues for a longer period and firms adjust their wage policies.

Knot reiterated that the conditions for an interest-rate hike next year are not likely to be met, despite the fact that they were “very unlikely”, Knot added. He was echoing recent guidance by a variety of ECB policymakers during the week.

($1 = 0.8655 euros)