BUENOS AIRES, Aug 27: Further interest rate tightening could be needed if stubbornly high inflation sparks a wage-price spiral in the euro zone, European Central Bank Vice President Lucas Papademos said on Wednesday.

Inflation in the 15-nation bloc remained persistently elevated despite a weakening in economic growth and would only fall gradually during 2009, he told a seminar in Buenos Aires.

There were also signs of domestic inflation pressures increasing, he said, pointing to rapid growth in labour costs.

“The main and serious concern is that the protracted period of high inflation ... has the potential to adversely affect price and wage setting behaviour and short to medium term inflation expectations, thereby inducing a wage-price spiral,” Papademos said.

“If this materialises, it will adversely and perversely affect growth and the purchasing power of households.—Reuters