Euro zone growth may be improving and European Central Bank policy will reflect this but inflation remains weak and needs to show a convincing upward trend before stimulus is removed.
This is according to two influential ECB policymakers today.
With growth accelerating, pressure has grown on the ECB from countries like Germany to start winding down its unprecedented stimulus measures, like its €2.3 trillion asset purchase programme and negative rates.
"We are fully aware, and by the way I would say there's even a unanimous view about economic developments, that the situation is improving and this will of course be fully reflected in our future decisions," ECB Vice President Vitor Constancio said.
Still, the labour market slack is large, wage growth is weak and economic output will remain below its potential at least until next year, warranting caution, Constancio added.
The ECB next meets on June 8 and markets expect the bank to revise its negative view on the economy, declaring risks to growth balanced.
It is also expected to discuss whether to remove its so-called easing bias, a signal that it is still ready to cut rates or raise the volume of its asset buys, if needed.
ECB chief economist Peter Praet has also warned that removing stimulus too soon could stall or reverse the upward trend in inflation.
"Underlying inflation pressures still give scant indications of a convincing upward trend as domestic cost pressures, notably wage growth, remain subdued," Praet told a conference in Sofia.
"Overall, while we are certainly seeing a firming, broadening and more resilient economic recovery, we still need to create a sufficiently broad and solid information basis to build confidence that the projected path of inflation is robust, durable and self-sustained," he added.
The ECB aims for inflation at just below 2% but has undershot its target for years and does not expect to hit its objective until 2019.
"I think that when we look at the history of monetary policy in Europe and outside, we have to be cautious about the premature withdrawal of stimulus, and if anything, it's preferable to err in the other direction," Constancio said.
