ECB Stays the Course on 'Middle Path' Amid Energy Price Pressures

ECB President Christine Lagarde confirmed that the European Central Bank (ECB) will maintain its cautious approach to raising interest rates, citing concerns over the energy shock's impact on inflation.

Lagarde stated that the ECB is on a 'middle path', balancing the need to address high energy prices with the risk of embedding higher inflation in wages and broader underlying inflation.

The latest inflation data suggests that headline inflation rose from 2.9% to 3.2%, driven largely by accelerating energy inflation, which increased from 10.3% to 14.3%. However, core inflation excluding energy and food eased to 2.4%, indicating a slowdown in underlying price growth.

Lagarde emphasized that wage data have not yet shown significant second-round effects, with compensation per employee slowing from 3.6% to 3.3%. This suggests that the energy shock has not become embedded in wages and broader inflation.