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BRUSSELS/FRANKFURT (Reuters) - If euro zone inflation falls deeper into the 'danger zone' as expected on Friday, it will at the very least complicate the European Central Bank's plans to wait and see whether its recent policy move to ignite the euro zone economy will work.
Inflation in the 18 countries using the euro is seen dropping to 0.3 percent in August, following a surprise dip to 0.4 percent in July, according to a Reuters poll of analysts. The data is due at 5 a.m. ET on Friday.
Together with updated projections from ECB staff, the data is likely to lead to a lively discussion at the ECB's Sept. 4 policy meeting about whether to accelerate existing policy measures because of the danger of deflation.
New action is unlikely though not impossible, according to ECB sources, who told Reuters the ECB is unlikely to act at next week's meeting unless the inflation figures show the euro zone sinking significantly toward deflation.
Inflation in the bloc's largest economy Germany on Thursday suggested the overall headline for the euro zone may not deliver a bigger than expected drop.
It was steady at 0.8 percent growth. Spain, the fourth largest economy, reported consumer prices fell 0.5 percent, lower than in July.
The ECB targets an inflation rate at below-but-close to 2 percent, a level not seen since the first quarter of 2013. It has been in what ECB President Mario Draghi has called "the danger zone" of below 1 percent since October last year.
Speaking in Jackson Hole last week, Draghi conceded that financial markets indicated "significant declines at all horizons" in inflation expectations, pledging to use "all the available instruments needed" to ensure price stability.
His comments fueled expectations that the central bank could soon follow the path of the U.S. Federal Reserve and others and start buying large quantities of private and sovereign debt in the market to boost inflation and growth, a process known as quantitative easing (QE).
A Reuters poll on Thursday suggested the bank will probably launch a QE program by March.
In his speech, Draghi also said fiscal policy could play a greater role alongside the ECB's monetary policy to support the recovery. While his comments were seen by some observers as a major shift away from a focus on austerity, others disagree.
"Mario Draghi did not call for a complete U-turn in the euro zone fiscal consolidation strategy, nor did he signal an imminent monetary stimulus on top of the measures announced in June," said Frederik Ducrozet, senior euro zone economist at Credit Agricole.
In June, the ECB cut interest rates to record lows, started charging banks to keep their funds overnight and launched a new long-term loan program, which will start in September and aims to give banks an incentive to lend more to the real economy.
Since then, the ECB has been in a wait-and-see mode, wanting to see the impact of its new liquidity injection first before considering further stimulus measures, though Draghi has stressed repeatedly the ECB stands ready to do more if needed.
Reporting by Martin Santa in Brussels and Eva Taylor in Frankfurt Editing by Jeremy Gaunt