Agence France-Presse .

Frankfurt The European Central Bank reiterated Thursday a strong warning about eurozone inflation, calling for price and wage moderation and suggesting it would raise interest rates if necessary. A monthly ECB bulletin said it was 'absolutely essential' that long-term inflation be avoided, stressing that the bank 'remains prepared to act preemptively so that second-round effects' do not materialise. Wording of the bulletin matched that of ECB president Jean-Claude Trichet on January 10, when the bank left its key interest rate at 4.0 per cent.

The bank could increase its main lending rate to keep inflation under control, though some analysts have suggested it is more likely to keep rates unchanged even if the economy takes a downturn as forecast. It released the bulletin a day after Trichet said the eurozone economy should grow by about its potential of two percent this year, brushing off comments made earlier by board member Yves Mersch.

'You know the position of the governing council, and of course last week's statement is still valid,' Trichet told journalists on the sidelines of an event in Frankfurt. Yves Mersch, Luxembourg central bank chief and a member of the ECB board, had suggested in an interview that the bank might consider rate cuts, in stark contrast with its regularly expressed position. The bank feels that eurozone inflation, which spiked to 3.1 per cent in November and December owing to high oil and food prices, is a temporary phenomenon. It wants to avoid a situation in which short-term inflation erodes buying power and sparks generalised demands for increased pay, which would spark a second round of inflation

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