In its 9 March statement, the European Central Bank (ECB) stated that, "A very substantial degree of monetary accommodation is still needed for underlying inflation pressures to build up and support headline inflation in the medium term".
However, if the recent growth trend in hourly labour costs continues, it may not need a "substantial degree" of policy accommodation for long.
The Eurozone's Labour Cost Index increased by 1.6% in the year to the December quarter, accelerating from 1.4% in the September quarter and 1.0% in June quarter. While this is in line with market expectations, the latest figure is the fastest annual rate of growth since the first quarter of 2016.
Wages and salaries per hour worked rose by 1.6% year-on-year in the fourth quarter of 2016 following a 1.5% increase in the third. Growth in the non-wage component sped up to 1.5% from 1.0% in the third quarter.
While this appears to have passed through to higher headline inflation - up 2.0% in the year to February from 1.8% in the previous month and 1.1% in December, the ECB remains unconvinced, noting that "this reflected mainly a strong increase in annual energy and unprocessed food price inflation, with no signs yet of a convincing upward trend in underlying inflation".
To be sure, underlying inflation remains low - up 0.9% year-on-year in December, January and February - and "are expected to rise only gradually over the medium term".