ECB Keeps Interest Rates Steady Amid Ongoing Energy Price Pressures

European Central Bank (ECB) President Christine Lagarde told lawmakers that rising energy prices are keeping inflation high, but the ECB is maintaining a measured response with interest rates. The euro area's headline inflation rate rose to 3.2% in August, up from 2.9% in July, driven mainly by energy price increases to 14.3%. Food and service inflation declined slightly.

Lagarde explained that the ECB does not react mechanically to higher energy prices but monitors whether they begin to become embedded in other prices, wages, and inflation expectations. She noted that compensation per employee rose by 3.3% in the second quarter, compared with 3.6% in the first quarter.

The ECB raised all three key interest rates by 25 basis points each in September, bringing the deposit facility rate to 2.50%. The institution's projections point to average headline inflation of 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028.