Lagarde Signals Cautious Approach as Euro Zone Inflation Accelerates

European Central Bank President Christine Lagarde signaled a measured response to rising inflation in the euro zone, which has surpassed 3% and could reach 4% by year's end. This rate is double the central bank's target. Speaking at a European Parliament committee hearing, Lagarde attributed higher prices primarily to surging oil and gas costs stemming from the US-Iran conflict.

Lagarde acknowledged that risks are skewed toward higher inflation readings and that uncertainty surrounding the outlook remains high. Market expectations had indicated as many as four additional rate increases may be needed over the next year, on top of two moves already made during the summer.

Economists note that a measured response is undefined but point to the first two rate hikes as a useful guide. Many expect the ECB to hold off at its October 29 meeting and raise rates only in December when new projections are released.