Lagarde Warns Euro Area Inflation Risks Rising Amid Energy Price Surge

European Central Bank (ECB) President Christine Lagarde warned of higher inflation risks in the euro area due to rising energy prices. Speaking at a European Parliament hearing, Lagarde stated that the ECB does not react directly to energy prices, but rather to the risk of embedded inflation.

The euro area's headline inflation rate rose to 3.2 percent in August from 2.9 percent in July, while energy inflation climbed to 14.3 percent from 10.3 percent. Lagarde noted that the ECB raised its key interest rates by 25 basis points earlier this month.

The ECB projects that headline inflation will average 3.0 percent in 2026, 2.5 percent in 2027, and 2.1 percent in 2028. Economic growth is expected to be 0.9 percent, 1.4 percent, and 1.5 percent over the same period.

Lagarde emphasized that there is currently no evidence of higher energy costs feeding into stronger wage growth. She added that while the energy shock is significant, a measured policy response remains necessary to keep inflation under control.