Lagarde Warns of Prolonged Inflation Shock as Energy Prices Remain Volatile

European Central Bank President Christine Lagarde warned that the current inflation shock is likely to last longer than expected, driven by ongoing volatility in energy prices. The conflict in the Middle East has contributed to higher costs for oil and gas, which have increased prices across the board.

The ECB raised interest rates this week for the second time since the Iran war sent oil and gas prices soaring, with officials expecting further rises to bring inflation back down to 2%. Currently, inflation is above 3% in the euro area.

Lagarde stated that there has been a 'major shock' and that the economy is resilient enough to withstand it. However, Bundesbank President Joachim Nagel suggested that borrowing costs may need to be brought into mildly restrictive territory to control price growth.