After yesterday's preliminary inflation data for December, which fell short of expectations speculations are again fuelling that there could be a stimulus hint from European Central Bank (ECB). According to flash estimate, Euro zone consumer price rose by 0.2% in December from a year ago, against market expectations of 0.3% rise. Core price rose by 0.8% y/y, compared to 0.9% rise in November.

Despite positive annual inflation, many countries like Germany, Italy experienced negative inflation in December, whereas in countries like Cyprus, Greece, annual inflation is still in negative.

Naturally market is expecting that ECB might have to do more to bring inflation rapidly towards its objective of below but close to 2%.

Next ECB meeting is scheduled on 21st January, 2016.

ECB president Mario Draghi, could point that ECB remain committed to its inflation target and ready to do more if situation demands so. However, any concrete hint from ECB is unlikely at the moment for below mentioned reasons.

• Hawks totally ruled December ECB meeting, leading to massive gap in market expectations and ECB actions. So, even if ECB keep itself committed to further actions and inflation target any concrete hint is unlikely.
• Despite ECB falling short of market expectations, current level of Euro is comfortable enough for ECB.
• Inflation may be weak but PMI data suggest, growth momentum intact in December, with Euro Zone manufacturing PMI at 53.3 and services PMI at 54.2.
• Unemployment is declining steadily across Euro Zone.
• Hawks are likely to point out effect of lower oil price on headline inflation and it as a stimulus for Euro Zone.
• Short rates are well anchored to ECB deposit rates.

So, unless anything big drops like hard landing in China, ECB is likely to maintain policy steady in the near term.