Lagarde Says Euro Zone Inflation to Stay High for Quarters

European Central Bank President Christine Lagarde has warned that euro zone inflation will stay elevated in the coming quarters, while declining to commit to a December interest rate hike, Investing.com reported, citing an interview published on Saturday by Japan’s Yomiuri Shimbun.

“We know that inflation numbers will remain high in the quarters to come,” Lagarde told the newspaper, adding that the longer prices stay high, the greater the risk to the ECB’s medium-term target.

No firm commitment on December

Lagarde said she could not say for certain that the bank would move in December. According to Investing.com, she indicated that significant changes would be needed for policy to take a different direction from the one she expects.

She said the ECB has so far not seen second-round effects beyond those already built into its projections, and that it is closely watching forward-looking indicators without yet seeing evidence of a shift. The interview transcript, published on the ECB’s website, records her saying policy will be decided on the basis of data and meeting by meeting.

The ECB held its deposit rate at 2.50% in late October. Investing.com said a possible December move would be a 25-basis-point increase, the third hike of the current cycle, and that hawks on the Governing Council are pushing for tighter policy.

Energy drives inflation

Headline inflation across the 21-member euro zone is running at double the ECB’s 2% goal, while core inflation held at 2.5% in October, the report said. Investing.com linked the surge to higher global crude and European natural gas prices since the Middle East conflict began.

The remarks follow comments Lagarde made on Thursday at a financial literacy conference in Milan, where Reuters reported she said the bank would have many indicators before December to help decide whether a hike is necessary. She described the situation as very hard, with energy costs pulling growth down and pushing prices up, and said artificial intelligence was fuelling investment demand and making the euro zone economy more resilient.

In Milan, she also said the ECB must use its tools because it does not want inflation expectations to run away. Reuters noted that several policymakers, including the heads of the German and Italian central banks, have already signalled a December move may be likely.

What’s next

The ECB’s December meeting will be among Lagarde’s last. She has announced she will step down on February 7, 2027, about nine months before her term formally ends. The Eurogroup confirmed on Friday that Klaas Knot and Pablo Hernández de Cos are the leading candidates to succeed her, according to Investing.com.

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