Lagarde Warns of Prolonged Euro-Area Inflation Due to Middle East Conflict

European Central Bank President Christine Lagarde stated that euro-area inflation is likely to remain elevated for longer than initially anticipated due to ongoing conflict in the Middle East, which continues to exert pressure on energy prices. The current shock will persist, according to Lagarde.

In an interview with Ouest-France, she pointed out that continued conflict and the destruction of refining capacity, particularly in Russia, are driving up energy costs. Despite higher costs threatening economic growth, the resilience of the euro-area economy necessitates policymakers' response to inflationary pressure.

Lagarde's comments follow the ECB's decision to raise interest rates for the second time since the Iran war drove oil and gas prices sharply higher. The deposit rate now stands 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.