On Wednesday, European Central Bank officials continued to call for further increases in interest rates, even as the eurozone economy showed more signs of weakness and progress on inflation.

Dutch central bank President Nauert said he was "not yet convinced that the current tightening measures are sufficient," saying Wednesday that "inflation is likely to remain high for a long time, at which point further interest rate increases will be necessary."

Another governing council member, Irish Central Bank governor Makhlouf, said "more needs to be done on monetary policy in the near term," while European Central Bank Executive Board member Gerry Schnabel said there was "more work to be done" on borrowing costs and how much would depend on upcoming data.

Recent data have provided grounds for optimism: Both headline and core inflation, which policymakers increasingly use as a guide, fell more than expected in May, while an ECB survey on Tuesday showed consumers' expectations for price movements slowed markedly.

Eurozone consumer inflation expectations fell in April

At the same time, with multiple interest rate hikes, the economic outlook in Europe looks shakier. Greece reported a surprise drop in first-quarter GDP on Wednesday, further weighing on a eurozone economy already reeling from a recession in Germany. The euro zone will release its final annual GDP reading for the first quarter on Thursday, and a survey in foreign media suggests the bloc will avoid stagnation.

In any case, ECB policymakers continue to stress that regaining control of prices is crucial to getting growth back on track. Investors and analysts still expect the ECB to raise rates by 25 basis points both next Thursday and in July, which would take the deposit rate to 3.75 per cent from below zero last July. Schnabel said:

"The peak of underlying inflation is not enough to declare victory: we need to see convincing evidence that inflation is returning to our 2% objective in a sustained and timely manner." We're not there yet."

Knott also believes that Europe is suffering from the second-round effects of higher energy costs, making it harder for consumer price growth to return to the 2 percent target. He reiterated on Wednesday that he was "open" to the possibility of an ECB rate hike in September.

"The fall in inflation is welcome, but it does not confirm to us that we have now done what we need to do to reduce inflation," Makhlouf said.