TL;DR
Get your next haul delivered free with Prime
- Fast, free delivery on millions of items
- Prime Video, Amazon Music and more included
- Member-only deals all year
ECB President Christine Lagarde told the International Monetary and Financial Committee on October 17 that the euro area faces higher inflation from the energy shock linked to the Middle East conflict, while growth risks remain tilted downward. She cited the ECB’s September 25-basis-point rate increase and said future decisions will depend on incoming data and the bank’s three-part policy assessment.
European Central Bank President Christine Lagarde told the IMF’s International Monetary and Financial Committee on October 17 that the euro area faces a difficult combination of rising energy-driven inflation and downside risks to growth. She cited the ECB Governing Council’s 25-basis-point rate increase in September, following an increase of the same size in June, and said policy decisions ahead will depend on incoming data and the inflation outlook.
In her statement at the committee’s 54th meeting during the IMF Annual Meetings, Lagarde said the global economy had remained resilient despite high uncertainty. She identified the Middle East conflict and sharp energy-market swings, trade tensions and protectionist measures as risks weighing on confidence and changing trade flows. Investment in artificial intelligence, she said, had supported activity and trade, especially in economies connected to technology supply chains.
For the euro area, Lagarde cited September ECB staff projections for growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Those forecasts assume that energy pressures ease over the medium term. The ECB expects domestic demand to benefit from recovering real incomes and a resilient labour market, while infrastructure and defence spending, investment in AI and digital technologies, and stronger foreign demand could support activity. Lagarde said the risks to growth remained tilted to the downside, particularly because the duration and intensity of the Middle East conflict are uncertain.
Inflation had moved higher: headline inflation reached 3.8% in September, mostly because energy inflation surged, with smaller increases in food and services. Core inflation was 2.5%. Lagarde said underlying inflation measures were broadly stable and wages had not yet shown a material response to the energy shock. The ECB expects higher energy costs to keep headline inflation well above target into the first half of 2027, before it declines and returns to around target toward the end of that year.
Energy Prices Shape ECB Policy
The statement links a geopolitical shock to the ECB’s central challenge: preventing higher energy costs from becoming more persistent inflation while avoiding unnecessary damage to economic activity. Lagarde said the shock was too large to ignore, but a measured policy response remained appropriate because the ECB had not yet seen significant spillovers into other prices and wages beyond those in its projections.
Rate increases affect borrowing costs for households, businesses and governments. Lagarde also noted that financing conditions had tightened, with long-term interest rates rising notably since the ECB’s previous meeting. She said that tightening would slow growth and reduce the pass-through of energy costs more than the September projections had anticipated. That makes the balance between inflation control and economic resilience especially relevant for borrowers, investors and public budgets.
As an affiliate, we earn on qualifying purchases.
Rate Decisions and Growth Forecasts
The ECB Governing Council raised its key interest rates by 25 basis points in June and again in September, according to Lagarde’s statement. She said the council evaluates policy using three criteria: its assessment of the inflation outlook and associated risks based on incoming economic and financial data; the dynamics of underlying inflation; and the strength of monetary policy transmission.
Lagarde’s remarks were delivered at the 54th meeting of the IMFC, the International Monetary and Financial Committee, during the IMF Annual Meetings. The statement also set out policy priorities beyond interest rates, including sound public finances, temporary and targeted responses to energy shocks, investment in skills and technology, and improved access to risk capital for innovative firms. The ECB said in the statement that more than 30 central banks had expressed interest in its enhanced EUREP repo facility over the previous six months.
“The global economy has proven surprisingly resilient in the face of high uncertainty.”
— Christine Lagarde, ECB president, in her IMFC statement
Conflict Duration and Inflation Spillovers
The statement does not establish how long the Middle East conflict or its effects on energy markets will last. Lagarde said the inflation and growth outlook depends in part on the intensity and duration of the conflict and on how energy shocks spread through the economy. A more persistent shock could lead to stronger indirect effects and higher, longer-lasting inflation; a sustainable resolution of geopolitical conflicts could instead ease price pressures.
It is also unclear whether energy costs will feed more substantially into wages and other prices. The ECB said it had seen no material wage response so far and no evidence of significant additional pass-through beyond what its projections already include. The statement does not specify the size or timing of any further rate changes. Its September inflation and growth figures are forecasts and assessments, not confirmed outcomes.
ECB to Reassess Incoming Data
Lagarde said future monetary policy decisions will follow a comprehensive assessment of incoming data under the ECB’s three-part reaction function. That means the Governing Council will continue to evaluate the inflation outlook, underlying price pressures and how monetary policy is affecting the economy before deciding on its next steps.
The near-term indicators to watch include energy prices, food and services inflation, wage developments, financing conditions and signs of weaker or stronger activity. The ECB’s projections point to headline inflation easing after the first quarter of 2027 and returning to around target toward the end of the year, but the path will depend on how the energy shock develops.
Key Questions
What did Christine Lagarde tell the IMFC?
She said the euro area was resilient but faced higher inflation from energy prices and downside risks to growth. She also described the ECB’s recent rate increases and how it will assess future policy.
How much did the ECB raise interest rates?
Lagarde said the Governing Council raised its key rates by 25 basis points in September, after an increase of the same size in June.
What is the ECB’s inflation outlook?
The ECB expects high energy prices to keep headline inflation well above target into the first half of 2027. Lagarde said it is projected to decline after the first quarter and return to around target toward the end of 2027.
What remains uncertain about the outlook?
The duration and intensity of the Middle East conflict, the path of energy prices, and whether those costs will spread further into wages and other prices remain uncertain. The ECB has not specified the timing or size of any future rate changes.
Source: primary
Halloween Picks
halloween
As an affiliate, we earn on qualifying purchases.
