Price rises change expectations of inflation, leading workers to bid for wage increases that preserve their buying power and firms to push through price increases, generating a vicious spiral.

But Mr Trichet's concern is that higher headline rates could push up inflation expectations, leading to bigger pay demands, and so trigger a wage-price spiral, as in the 1970s.

Price rises change expectations of inflation, leading workers to bid for wage increases that preserve their buying power and firms to push through price increases, generating a vicious spiral.