PRICES RISE AND BUSINESSES GROW, BUT ECB LIKELY TO KEEP RATES

FRANKFURT— 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 its 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-moneyat-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 betterthan-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.

This is a far cry from the “sustained” increase in inflation that ECB President Mario Draghi wants to see before stopping the bond-buying program.

Once energy and volatile food prices are stripped out, inflation did accelerate in December, but only to 0.9 percent.

Economists at Barclays expect it to average just 1 percent this year.

This is key because ECB director Benoit Coeure said last week the central bank needed to see this ‘core’ measure, which is a good indicator of economic activity, “clearly exceed 1 percent”.

Indeed, euro zone bond yields edged lower on Wednesday as investors appeared to focus on the region’s core inflation rather than high overall price growth.

With the picture improving and the latest rebound in oil prices not yet factored into the ECB’s December projections, the central bank may have to revise up its forecasts, but few expect this to translate into immediate policy action.

“The ECB will take note of this, but will wait for further confirmation before it reacts with its monetary policy,” Joerg Zeuner, chief economist at German development bank KfW, said.