Dec. 6 (Bloomberg) -- European Central Bank President Jean- Claude Trichet threatened to raise interest rates if an oil-driven jump in inflation spurs pay increases.

There is ``strong short-term upward pressure on inflation,'' Trichet said at a press conference in Frankfurt after the ECB left its benchmark interest rate at 4 percent. The ECB ``will not tolerate second-round effects'' on wages and some policy makers wanted to raise rates as early as today, Trichet said.

Inflation in the 13-nation euro region accelerated to 3 percent last month, the fastest in six years, after food prices rose and oil reached a record. At the same time, the collapse of the U.S. subprime mortgage market made banks reluctant to lend, pushing up credit costs and damping the growth outlook. The Bank of England today followed the U.S. Federal Reserve and Canada's central bank in cutting rates to shore up economic expansion.

``The ECB is not on the same page as the Fed and BOE,'' said Ken Wattret, an economist at BNP Paribas in London. ``If it wasn't for market turmoil, rates would be going up to counter inflation risks.''

The euro rose after Trichet's comments, to $1.4637 from $1.4554 beforehand. The currency, which reached a record $1.4968 on Nov. 23, has appreciated against the dollar as U.S. interest rates declined.

`Big Worry'

Fed Chairman Ben S. Bernanke fueled investor speculation he'll cut rates again next week when he said Nov. 30 that ``uncertainty surrounding the outlook'' is ``even greater than usual,'' requiring the central bank to be ``exceptionally alert and flexible.''

The Organization for Economic Cooperation and Development today advised the Fed and the ECB not to cut rates, predicting the world economy will weather fallout from the U.S. housing slump.

In Europe, ``inflation is a big worry,'' ECB Executive Board member Juergen Stark said at a conference in Frankfurt today. ``Growth should still be robust and around potential, but there should be a slight weakening.''

The ECB cut its forecast for 2008 economic growth to about 2 percent from 2.3 percent and raised its projection for inflation to 2.5 percent from 2 percent. The bank, which aims to keep inflation below 2 percent, forecasts the rate will drop to about 1.8 percent in 2009.

`Key Assumption'

Trichet said the projections assume that the recent jump in inflation ``will not have broadly-based second-round effects on wage-setting behavior.'' This is ``a key assumption'' and the prevention of second-round effects is ``essential in today's message,'' he said.

Trichet ``was threatening the unions directly'' with a rate increase, said Dario Perkins, an economist at ABN Amro in London. ``If they see any signs of second-round effects, they will raise rates.''

Wages are already rising to compensate for higher costs. In Finland, 15,350 nurses withdrew a mass resignation on Nov. 19 after winning as much as 28 percent in wage increases over four years.

In Germany, Europe's largest economy, state-owned railway Deutsche Bahn AG last week reached agreement with 135,000 employees to increase their salaries by 10 percent through 2010.

The push for higher wages may intensify as German civil servants enter pay talks in the New Year. Unions have said they may demand an increase of as much as 7 percent.

Divided Council

The ECB's 19-member Governing Council is split over how to deal with faster inflation and slower growth.

Executive Board member Jose Manuel Gonzalez-Paramo said this week that rate cuts would be justified if financial-market turbulence slows growth and inflation. On the other side of the debate, council members including Germany's Axel Weber and Austria's Klaus Liebscher have argued in favor of raising rates to contain price increases.

Weber said Nov. 23 that even during a period of turmoil on money markets, ``there are still inflation risks that may signal the need to raise rates further as tensions progressively ease.''

While the ECB ``stands ready to counter upside risks to price stability,'' Trichet said the reappraisal of risk in financial markets is ``still evolving, and uncertainty about the potential impact on the real economy has continued.''

``They've been ready to raise interest rates since August, but they haven't,'' said Jacques Cailloux, chief euro-area economist at Royal Bank of Scotland Plc in London. ``The economy will slow down more than expected. The next move will be a rate cut.''

To contact the reporters on this story: Matthew Brockett in Frankfurt at mbrockett1@bloomberg.net; Simone Meier in Frankfurt at smeier@bloomberg.net

Last Updated: December 6, 2007 12:30 EST