The European Central Bank (ECB) said today the sluggish economy and a stronger euro look likely to dampen inflation in the medium term.
The comments may signal the ECB may be finally preparing for a cut in interest rates.
"Overall, the subdued trends in economic activity and the stronger exchange rate of the euro support the view that medium-term inflationary pressures should decline," the ECB said in its November monthly bulletin.
The ECB repeated its warning about strong money supply and wage growth but the soft wording on inflation contrasted with earlier statements that it saw price risks as "balanced".
The bulletin echoed remarks by ECB policymakers earlier this week that has stoked speculation the bank will soon cut interest rates, citing prospects for consumer inflation to fall back in line with the bank's 2 per cent ceiling.
The ECB kept its key rate at 3.25 per cent last week but admitted there was growing pressure inside its governing council for a confidence-boosting rate cut. It is next due to decide on interest rates on December 5th.