Lagarde Flags Energy Price Risk to Euro Area Inflation Outlook

ECB President Christine Lagarde has warned that higher energy prices pose a risk to inflation in the euro area. Speaking at a European Parliament hearing, she said that while the central bank does not directly react to energy prices, it takes into account the potential for them to become embedded in inflation.

Lagarde pointed out that euro area headline inflation rose to 3.2 percent in August from 2.9 percent in July, with energy inflation climbing to 14.3 percent from 10.3 percent. The ECB's September staff projections show that headline inflation is expected to average 3.0 percent in 2026, 2.5 percent in 2027, and 2.1 percent in 2028.

However, Lagarde noted that the inflation outlook for 2027 and 2028 is higher than projected a few months ago, mainly due to higher energy prices. Nevertheless, she emphasized that there is currently no evidence that higher energy costs are feeding through into stronger wage growth.