The European Central Bank suspended its emergency purchases of euro zone government bonds last week as the debt crisis eased, allowing it to focus on combating rising inflation.
Official data published on Monday showed annualised euro zone inflation reached 2.4 percent in January, the highest for more than two years and beyond the ECB’s target of “below but close” to 2 percent.
The ECB is expected to hold its interest rate unchanged at 1 percent on Thursday.
However, the larger than expected rise in prices is likely to prompt warnings from Jean-Claude Trichet, bank president, that the ECB will act on any signs of inflation spinning out of control. Euro zone inflation was 2.2 percent in December.
The ECB said its government bond purchase programme – launched last year as part of European Union efforts to stabilise the euro – was halted last week for the first time since October.
Weekly purchases had hit almost €3 billion late last year.
Mr Trichet insisted that ECB monetary policy is detached from crisis-fighting moves. However, financial markets would be unlikely to take seriously a threat to raise interest rates if the ECB was still intervening heavily in markets.
The ECB could be forced to resume purchases in coming weeks but Mr Trichet has lobbied hard for the EU’s new rescue mechanisms to take over the role of supporting markets through bond purchases in a comprehensive package likely to be agreed in March.
“They are just waiting for someone to untie their hands,” said Carsten Brzeski at ING in Brussels.
Economists do not see euro zone interest rates rising before late this year. Although Eurostat, the EU’s statistical office, gave no detail, January’s inflation acceleration was probably due to food and oil price rises.
The rise in oil prices resulting from the Egyptian crisis could add to inflation pressures in coming weeks but a stronger euro has had the opposite effect.
After a further rise in February, economists expect inflation to fall later this year.
However, the ECB is taking a noticeably harder stance than other central banks because it is worried that a temporary “hump” in inflation could become longer-lasting if it resulted in “second round effects”, for instance through higher wages.
ECB policymakers have warned over the past week against relying on measures of “core” inflation, which exclude energy and food prices.
The robustness of the euro zone’s German-led economic recovery has strengthened the case for a tightening of ECB monetary policy.
Underlying inflation pressures in Germany showed signs of picking up in January, with business becoming more confident about passing cost rises on to consumers.
However, hopes that Germany’s economy was rebalancing away from export-led growth and towards stronger domestic demand have been dashed by data on German high-street spending.
December’s seasonally adjusted retail sales unexpectedly fell 0.3 percent compared with November. That meant sales in the final three months of last year were 1.7 percent lower than in the previous quarter.
German retail figures are notoriously unreliable and subject to substantial revision. Severe weather in December deterred consumers, who might also have delayed spending until January’s sales.