Lagarde Warns Eurozone Inflation Shock Will Last Longer Amid Middle East Conflict
ECB President Christine Lagarde has stated that the eurozone inflation shock will last longer than expected, driven by continued conflict in the Middle East and the destruction of refining capacity. In an interview with Ouest-France, she noted that energy markets remain volatile, keeping prices elevated.
The ECB raised interest rates this week for the second time since the war against Iran drove oil and gas prices sharply higher, with the deposit rate now standing at 2.5%. Inflation in the euro area is currently above 3%, and policymakers expect further tightening may be needed to return price growth to the ECB's 2% target.
New ECB projections released Thursday raised inflation forecasts for 2027 and 2028, with price growth in 2028 now expected to sit slightly above the central bank's target. Bundesbank President Joachim Nagel also stated that borrowing costs may need to move into mildly restrictive territory to bring inflation under control.