Market graphic - The effects of inflation

Market graphic

Although the recent increase in inflation is widely believed to be temporary, there are concerns that the current peak could turn into a protracted surge. Specifically, it is feared that the current high rates of price growth could set off an inflationary spiral if workers react with demands for higher wages - prompting ECB president Jean-Claude Trichet to threaten to raise interest rates.

However, labour cost increases in the eurozone are likely to remain fairly moderate because of three factors