Prices rise and businesses grow, but ECB probably not for turning

Wed Jan 4, 2017 9:29am EST
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By Francesco Canepa

FRANKFURT (Reuters) - A sharp rebound in euro zone inflation and a better-than-expected business outlook are certain to fire up demands from some hardliners for the European Central Bank to choke off it ultra-generous monetary policy.

But don't bet on the bank doing it just yet.

The ECB is still looking at a highly uncertain economic and political landscape in the coming year and is far from declaring victory in its throw-money-at-it campaign to boost inflation to what it sees as normal and to create sustained economic growth.

Consumer prices, a key gauge of economic health, rose by 1.1 percent in the 19-country euro zone last month, nearly twice as fast as in November and the highest pace in more than three years.

Composite purchasing manager indexes for France, Germany and the euro zone as a whole also came in higher that anyone polled by Reuters had forecast. That implies better-than-expected business expansion.

It also means the ECB could hail the latest reading as evidence that its ultra-loose monetary policy is finally driving inflation toward its target of almost 2 percent.

But there are caveats a-plenty.

First, the inflation increase was partly the result of a stabilization in oil prices, the effect of which are set to start falling out of the data by March.   Continued...

The logo of the European Central Bank (ECB) is pictured outside its headquarters in Frankfurt, Germany, December 8, 2016.  REUTERS/Ralph Orlowski