Lagarde Defends ECB's Measured Response to Inflation Fears

European Central Bank (ECB) President Christine Lagarde defended the recent interest rate hike during her appearance before the European Parliament's Economic and Monetary Affairs Committee. She emphasized that a 'measured response' is necessary to keep inflation under control, and that the current path of monetary policy remains on track.

Lagarde noted that ECB projections indicate higher inflation rates in 2027 and 2028 than previously expected. However, she stated that there is no clear evidence of structural entrenchment, meaning that inflation has not become a permanent feature of the economy.

The President acknowledged that interest rate hikes will have negative effects on economic growth, but expressed confidence that the ECB's strategy will ultimately lead to moderate economic dynamism and reduced transmission of corporate profits. She also highlighted the importance of addressing the severe skills shortage related to artificial intelligence (AI) and ensuring that the workforce can adapt to this transformative change.

Lagarde focused on the high uncertainty weighing on the eurozone's outlook, with 'upside risks for inflation and downside risks for economic growth'. Despite these challenges, she highlighted positive elements such as the evolution of employment, consumption, productivity, business investment, or exports. However, she emphasized that wage advancement continues to lag behind.