Lagarde Warns of Energy Price Inflation Risks in Euro Area

European Central Bank (ECB) President Christine Lagarde expressed concerns about rising energy prices in the Euro Area, which could lead to increased inflation risks. Speaking at a European Parliament hearing, she stated that while the ECB does not directly react to energy prices, it takes into account the risk of higher costs becoming embedded in inflation.

Lagarde noted 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. According to the ECB's September staff projections, headline inflation is expected to average 3.0 percent in 2026, 2.5 percent in 2027, and 2.1 percent in 2028.

Lagarde pointed out that the inflation outlook for 2027 and 2028 is higher than previously projected due to increased energy prices, but there is currently no evidence of stronger wage growth as a result. She emphasized that while the energy shock cannot be ignored, a measured policy response remains appropriate to keep inflation in check.