Lagarde Warns Euro-Area Inflation Will Remain Elevated Amid Energy Turbulence

European Central Bank President Christine Lagarde warned that euro-area inflation will remain elevated due to ongoing energy-price turbulence. She cited the prolonged effects of the Middle East conflict and destruction of refining capacity worldwide, particularly in Russia, as key drivers of higher prices.

Lagarde said the current shock is 'longer-lasting' than expected, with the ECB anticipating more rate increases to curb inflation above 3%. The central bank has already raised borrowing costs this week, marking its second hike since the Iran war drove oil and gas prices sharply higher.

The Bundesbank President Joachim Nagel echoed Lagarde's sentiment, suggesting that interest rates may need to move into mildly restrictive territory to tame price growth. New projections indicate quicker inflation in 2027 and 2028, with 2028 now slightly above the ECB's goal.