Jacqui Douglas, the chief European macro strategist at TD Securities, notes that the December estimate of Eurozone inflation showed headline ticking up to 1.3% YoY on higher energy prices, and core CPI holding steady at 1.3% YoY.

• "Recent trends in core CPI have been unusually strong, with the 3m annuazed trend jumping to 1.7%. Core goods inflation has picked up a touch, but services CPI, outside of one-off jumps in travel costs or methodology changes, is posting its strongest gains in about 7 years. Meanwhile, the ECB's alternate underlying inflation measures (which we only have up until November) have been fairly flat for the last half-year.
• We believe it's too early to call this a change in trend. But it will leave the ECB feeling more comfortable about inflation prospects and the current amount of stimulus in place.
• However, with the ECB forecasting HICP of only 1.6% in 2022, we think it's far too early to start thinking about rate hikes or even the end of QE. That being said, if M/M core CPI trends don't show any signs of unwind in the next 1-2 months, that would make for a more convincing upward trend. This would likely see the ECB remain on hold in March, rather than our forecast for a 10bps rate cut."