Trichet also noted some signs of moderation in both monetary and credit aggregates within the euro zone.

In his introductory statement, Trichet stressed the need to avoid broad-based second-round inflation effects.

Maintaining price stability is the main objective, Trichet said, adding that the current monetary policy stance would contribute to that goal.

The ECB "will monitor very closely" all events, Trichet said.

The ECB president conceded that the euro zone would experience an episode of weakened economic activity. However, Trichet added that the growth outlook was expected to remain resilient on the back of emerging markets.

Nevertheless, Trichet said that uncertainties were particularly high and that downside risks to growth were prevalent.

Trichet also acknowledged that food and oil prices could continue to dampen consumption and investment, and that the ongoing financial rout would add to the downside growth risks in the monetary union.

Trichet reiterated that upside risks to prices remained due in part to strong commodity prices, including food and energy costs.

Trichet speculated that annualized HICP levels would remain "well above" levels consistent with price stability for some time.

Announcing the staff projections during his speech, Trichet highlighted that the figures were based on food and oil prices stabilizing and suggested that inflation in the euro area would moderate gradually.

Trichet also repeated his concern over second-round inflation effects and emphasized that the governing council would be monitoring wage negotiations with "particular attention".

The ECB president reiterated that the central bank was worried about schemes involving the indexing of wages to CPI levels.

A wage-price spiral would harm unemployment and competitiveness, Trichet said.

Trichet also stressed that it was imperative that medium-to-long-term inflation expectations remain stable and called on all parties to meet their responsibilities regarding price stability.

The ECB president commented on fiscal imbalances within the euro zone and said that countries with large government deficits need to have more ambitious fiscal planning.

The pursuit of a stable fiscal policy would help to contain inflation, Trichet added.

By Todd Wailoo, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it

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