European Central Bank President Jean-Claude Trichet today urged workers and employers to show restraint when hammering out new pay deals in the wake of recent rises in the cost of everyday essentials.
"The Governing Council is paying particularly close attention to wage negotiations in the euro area," he said at an awards ceremony in Germany.
"Second-round effects stemming from the impact of higher energy and food prices on wage and price-setting behaviour must be avoided."
Europeans are feeling the pressure of higher fuel and food prices, driven by strong demand as well as supply shortages as governments in key growing countries ban some exports and farmers elsewhere switch to biofuel crops.
Inflation rose to a record high of 3.6 per cent in March, although it is estimated to have eased to 3.3 per cent in April.
So far in 2008, German public sector and steel workers have received their biggest pay rises in 16 years but policymakers have warned against using the deals as a benchmark elsewhere, given several years of wage restraint in the euro-zone's biggest economy.
Trichet said that European consumers would only be able to control prices if wage rises remained in check.
"Features that enforce wage rigidity and lead to non-optimal wage setting, in particular, general indexation of nominal wages to the consumer price index, should be avoided," he said.
"This is of key importance for preserving price stability in the medium term and, in turn, the purchasing power of all euro area citizens."