By Tom Fairless 

FRANKFURT--The European Central Bank at a policy meeting on Thursday is expected to leave its EUR1.8 trillion ($2 trillion) stimulus package unchanged and to hike its inflation forecasts for the first time in a year, in a nod to higher oil prices.

But nearly 18 months into its massive bond-purchase program, data published on Tuesday showed that the ECB is still far from hitting its inflation goal of around 2%.

Eurozone consumer prices fell by 0.1% in May from a year earlier, the European Union's statistics agency said, the second straight month of deflation in the currency area. While economists expect prices to start rising in the coming months due to a rebound in oil prices, they are divided on whether the ECB will need to boost its bond-purchase program again to hit its target.

ECB officials have urged investors to be patient and wait for the full impact of their latest policy measures to unfold. Some steps have yet to be implemented.

"There's a pretty broad consensus among investors that the ECB is done for the time being, and now it is just wait and see," said Martin Lueck, chief German investment strategist at BlackRock, Inc., which manages assets worth $4.7 trillion.

At ECB President Mario Draghi's news conference on Thursday, he is likely to tread a careful line, emphasizing the bank's willingness to take further action if inflation doesn't pick up decisively, while stressing the need for patience, analysts predicted.

The ECB has launched a series of stimulus packages since mid-2014 with the aim of lifting ultralow inflation. The most recent package came in March. Policymakers hope that by buying mainly government bonds, the ECB will drive down interest rates across the economy and stimulate growth.

However, inflation has hovered close to zero for the past two years. Worryingly, core inflation, which excludes volatile energy and food prices, rose only slightly in May, to 0.8% from 0.7% the previous month.

"The ECB will remain extremely vigilant to any shocks that could help push the euro area into outright deflation," said Marchel Alexandrovich, an economist with Jefferies in London.

Other recent data have been more positive. The eurozone's economy expanded by 0.5% in the first three months of the year, compared with the previous quarter, exceeding the growth rate in both the U.S. and the U.K. Bank lending to businesses hit a fresh four-year high in April, and the region's unemployment rate, at 10.2%, is near a five-year low, according to data published on Tuesday--though still twice the level in the U.S.

Taken together, Tuesday's data "go in the right direction," and "speak against further loosening of monetary policy," said Claudia Broyer, an economist at Allianz SE in Frankfurt.

Several major ECB policy measures will only take effect in June, including its first purchases of corporate bonds and a series of cheap four-year loans for banks, under which banks could be paid to borrow. Both policies are directly aimed at reducing the cost of loans for businesses and consumers, and thereby stoking growth. Mr. Draghi may unveil fresh details on Thursday of the corporate-bond purchases, which target a market worth around EUR800 billion, analysts said.

Inflation may receive an additional boost if the U.S. Federal Reserve raises its short-term interest rates over coming months, as some senior Fed officials have indicated it might, since that would likely weaken the euro and raise prices of imported goods and services.

Either way, a rebound in oil prices is likely to drive inflation toward 1% by year-end, economists said.

"The past two-and-a-half years must have been extremely frustrating for the ECB because whenever they took action, oil prices would drop some more and destroy the effects of its stimulus on inflation expectations," Mr. Lueck said. "Now they may be hoping that they will finally see the fruits of their labor."

The ECB's quarterly staff projections, due to be published on Thursday, will be key, analysts said. If higher oil prices fail to raise inflation forecasts for 2017 and 2018, that "probably means the ECB doesn't consider the instruments it has been using so far have been sufficiently effective," said Mr. Lueck. In its March forecasts, the ECB predicted that inflation would reach 1.3% next year and 1.6% in 2018, still considerably below its target.

ECB officials have indicated that any fresh action would likely focus on bond purchases, currently running at EUR80 billion per month, rather than interest rates. Banks and insurance companies complain that the ECB's negative interest rates are undermining their profits.

The ECB has boosted its balance sheet above EUR3 trillion in recent weeks as a result of its bond purchases, but it remains smaller than it was in mid-2012, at the height of the region's debt crisis.

Some economists say that isn't good enough.

"It is quite disappointing that 18 months after the ECB decided to embark on quantitative easing, the ECB balance sheet continues to be below the level reached in 2012," said Athanasios Orphanides, a member of the ECB's governing council between 2008 and 2012, and now an economics professor at the Massachusetts Institute of Technology.

"This is indicative of reluctance to ease policy as necessary."

Paul Hannon and Todd Buell contributed to this article.

Write to Tom Fairless at tom.fairless@wsj.com

(END) Dow Jones Newswires

May 31, 2016 12:22 ET (16:22 GMT)