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Christine Lagarde said euro area headline inflation reached 4% in October, driven largely by energy prices, while core inflation held at 2.5%. The ECB president told Yomiuri Shimbun that the bank sees no evidence yet of broader second-round effects, but will assess new data before deciding monetary policy.
European Central Bank President Christine Lagarde said euro area headline inflation was 4% in October, above what the bank had expected a few months earlier, with higher energy and food costs contributing to the increase. In an interview published by the ECB on November 7, she said underlying inflation indicators were stable and the bank was not yet seeing evidence of second-round effects beyond those included in its projections.
Lagarde attributed much of the October inflation reading to energy. She said energy inflation rose to 20.8%, from 18.9% in September, citing conflict in the Middle East and reduced global refinery capacity. Food inflation also increased. By contrast, core inflation, excluding energy, food, alcohol and tobacco, was 2.5%, unchanged from September. Services inflation edged up to 3.3%, which Lagarde said remained within the range seen over the previous four months.
The interview was conducted on November 4 by Hironari Akiyama of Japan’s Yomiuri Shimbun. Lagarde said detailed data on the inflation breakdown were not yet available, leaving questions about whether services prices were being pushed mainly by energy-intensive sectors such as transport or by wider indirect effects. She said the ECB would examine that information closely.
Lagarde also said the bank was not currently seeing indications that price pressures were feeding into wages beyond what its projections already assumed. She cited multi-year wage agreements and companies’ wage expectations as forward-looking indicators the ECB was monitoring. She declined to anticipate whether the next forecast would be revised upward, saying the forecast exercise would weigh developments including higher energy futures and long-term interest rates against other changes, including a recent decline in oil prices.
Energy Prices Complicate the Inflation Outlook
The figures present the ECB with a distinction between a sharp rise in headline inflation and more stable underlying measures. Energy inflation at 20.8% lifted the overall October rate, while core inflation stayed at 2.5%. That difference matters to policymakers because a temporary energy-driven increase may have different implications from price pressure spreading across services, wages and other parts of the economy.
Lagarde cautioned that even if the current rise is concentrated in energy, the level and duration of elevated inflation could raise risks to the ECB’s medium-term target. The interview does not announce a change in interest rates or a new policy decision. Instead, it describes an unsettled outlook in which the central bank is waiting for more detailed inflation data and updated forecasts before judging how persistent the pressure may be.
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Lessons From the 2021 Energy Shock
Asked about the ECB’s response to the energy shock following Russia’s invasion of Ukraine in 2021, Lagarde said central banks initially viewed the inflation increase as a supply shock likely to pass. She recalled discussions involving the Federal Reserve, Bank of England, Bank of Japan and ECB, and said policymakers had expected supply-driven inflation to fall as it had risen.
In hindsight, Lagarde said that assessment was misguided because it did not account sufficiently for a concurrent demand shock. As economies reopened, consumers spent savings accumulated during the pandemic, adding pressure alongside supply constraints. She described that experience as a reason to account for greater uncertainty now, including trade and supply-chain disruptions and a shift toward security over efficiency.
The interview also addressed women’s representation in leadership. Lagarde said there were two women among 27 people seated at ECB Governing Council meetings: herself and Executive Board member Isabel Schnabel, whom she said was due to step down at the beginning of January. Lagarde said government appointments often favor men, in part because decision-makers tend to choose people who resemble themselves.
“Headline inflation in October was at 4%, which was higher than we had expected a few months ago but in line with market expectations.”
— Christine Lagarde, ECB president, in the Yomiuri Shimbun interview
Key Inflation Details Are Pending
The interview does not provide the detailed October inflation breakdown Lagarde said the ECB was still awaiting. That information is needed to clarify whether services inflation reflects higher costs in energy-intensive areas such as transport or broader indirect effects. The ECB’s next forecast will determine how higher energy futures and long-term interest rates affect its medium-term outlook; Lagarde did not specify the direction or size of any forecast revision.
It also remains uncertain how long energy-related inflation will stay elevated or whether it will affect wages and other prices. Lagarde said the ECB had not yet found evidence of second-round effects beyond its projections, but she described the economic environment as highly unpredictable. No interest-rate decision or timetable for one was announced in the interview.
ECB to Weigh Data in Its Forecast
The ECB’s next forecast exercise will assess how changing energy futures, interest rates, oil prices and other economic developments affect inflation and growth. Lagarde said the bank would scrutinize the detailed inflation breakdown when it becomes available, particularly the drivers of services inflation, and continue monitoring wage agreements and business expectations.
She said monetary policy decisions would be based on incoming data and made meeting by meeting. The interview did not identify a specific future rate move. The next developments to watch are the detailed price data, the ECB’s updated projections and evidence on whether energy costs are spreading into wages and broader prices.
Key Questions
What did Lagarde say about euro area inflation in October?
She said headline inflation was 4% in October, higher than the ECB had expected a few months earlier but in line with market expectations. Energy inflation rose to 20.8%, while core inflation was unchanged at 2.5%.
What did Lagarde identify as the main driver of the increase?
She said the increase was largely attributable to energy costs, citing conflict in the Middle East and reduced global refinery capacity. She also said food inflation had increased.
Did Lagarde signal an interest-rate increase?
No rate move was announced in the interview. Lagarde said she would not pre-empt the ECB’s forecast and described policy decisions as based on incoming data and taken meeting by meeting.
Is the ECB seeing broader wage and price effects?
Lagarde said the ECB was not currently seeing second-round effects beyond those included in its projections. She said policymakers were watching wage agreements and company expectations.
What did Lagarde say about women’s representation at the ECB?
She said two of 27 people at Governing Council meetings were women: Lagarde and Isabel Schnabel. She also said governments typically make appointments and may favor candidates who resemble existing decision-makers.
Source: ecb.europa.eu
