If the leading ECB official is correct, the West is about witness yet another episode of 'That 70s Inflation Show'.

European Central Bank President Jean-Claude Trichet warned Wednesday that euro nations are already seeing the first signs of a wage-price inflation spiral, and called on governments to exercise discipline by not granting wage hikes that could further fan inflation via consequent price rises, The Associated Press reported.

The ECB's governing council "is strongly concerned that price and wage-setting behavior could add to inflationary pressures," Trichet told the European Parliament, while also defending the ECB's decision last Thursday to increase interest rates. "First signs are already emerging in some regions of the euro area."

A wage-price spiral typically occurs when employees and others seek wage increases to keep pace with rising prices. The increased wages ratchet up employer costs, who pass the added costs on to consumers via higher prices, perpetuating the wage-price spiral.

Trichet's concern: Rising European inflation

Trichet cited the danger of rising inflation in the ECB's decision Thursday to increase its benchmark short-term interest rate, the refinance rate, by a quarter-point, to 4.25%. Some economists viewed the ECB's tightening action as premature, citing slowing GDP growth in the euro zone. Euro zone inflation is currently running at about a 3.7% annualized rate -- well above the ECB's 2% limit.

Economist Peter Dawson told BloggingStocks Wednesday that Trichet "is in difficult spot, from a monetary standpoint." Europe, Dawson noted, has higher, built-in fixed costs than the United States, due to a higher percentage of unionized workers and more rigorous national-level laws protecting employees. As a result, price increases are likely to ripple through European economies much more quickly than in the United States if wage increases are not checked.

"Trichet's been criticized much, but he'll look all the smarter if euro zone inflation continues to accelerate," Dawson said, adding that he supported the ECB's interest rate increase decision.

Monetary policy analysis: In this case, we have to differ with economist Dawson, maintaining that the ECB acted prematurely last week, and risked a further dip in euro zone GDP growth in the process. The proof, of course, will be Europe's GDP and inflation data, including wage data, for the months and quarters ahead.