Market graphic - The effects of inflation

The current peak in inflation is unlikely to lead to labour cost increases across the eurozone, argues Katrin Robeck, economist at Moody's Economy.com

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