WIESBADEN (Germany), Jan 5: The European Central Bank is ready to act against inflation dangers and prevent a wage-price spiral setting in as a result of current prices pressures, ECB President Jean-Claude Trichet said on Saturday.

Trichet told German Chancellor Angela Merkel and other members of her Christian Democrat party that euro zone growth fundamentals were sound, but that inflation was likely to remain well about 2 per cent in the months to come.

The ECB meets to set interest rates on Jan 10 and Trichet said his remarks reflected the conclusions of the ECB’s last rate meeting on Dec 6 and were not meant to pre-empt next Thursday’s discussion.

“The ECB’s Governing Council stands ready to counter upside risks to price stability,” Trichet told the gathering of conservative politicians, according to a speech text published by the ECB.

“For the recent increase in inflation to remain temporary, it is essential that the price- and wage-setting behaviour remains unaffected by current inflation rates,” he said.

Merkel said Trichet’s remarks had strengthened her conviction that German wage deals should reflect productivity, not inflation, and of the importance of respecting European Union rules on budget deficits. She also said the ECB’s policy had proved itself and praised the stability of the euro.

Trichet, in a short public statement, thanked Merkel for her support for the ECB’s political independence last year, when French President Nicolas Sarkozy questioned the central bank’s focus on controlling inflation.

Euro zone inflation is running at 3.1 per cent, well above the ECB’s medium-term goal of just below 2 per cent. Nonetheless, economists say economic uncertainty caused by a US slowdown means the ECB is unlikely to raise rates from 4 per cent, where they have been since June.

The ECB would be wise to keep rates on hold until the impact of the US subprime mortgage crisis on European banks became clearer, the president of Germany’s Ifo economic institute, Hans-Werner Sinn, said in an interview.

Trichet said the ECB was keeping a close watch on financial market developments, and observed that the pace of house price growth in the euro zone was slowing from its previous rapid pace, though with big regional variations.“The outlook for the euro zone as a whole -- I insist, for the euro area as a whole -- remains that of a relatively soft landing,” he said.”—Reuters