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ECB President Christine Lagarde told the European Parliament’s economic affairs committee on 28 September that the euro area economy had remained resilient, while inflation rose to 3.2% in August. She explained the ECB’s recent 25-basis-point rate increase and said AI could affect productivity, investment, jobs and inflation, though its overall economic impact remains uncertain.
European Central Bank President Christine Lagarde told lawmakers on 28 September that the euro area had shown resilience despite an energy shock, while August inflation rose to 3.2%. At a hearing of the European Parliament’s Committee on Economic and Monetary Affairs, she also explained the ECB’s recent 25-basis-point rate increase and said artificial intelligence could shape investment, work and prices, with its overall economic effects still uncertain.
Lagarde said real GDP grew solidly in the second quarter of 2026, with growth spread across most countries and sectors. She said that pattern was expected to continue in the third quarter. Manufacturing had performed solidly, supported by higher government spending on defence and infrastructure, while consumer confidence had rebounded from its spring lows. The ECB president also pointed to AI-related activity in digital services, business investment and exports.
The labour market remained robust, though employment and labour-force growth were slowing. Unemployment was 6.4% in July, and compensation per employee grew 3.3% in the second quarter, down from 3.6% in the first. The September ECB staff baseline projected GDP growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028.
Headline inflation rose from 2.9% in July to 3.2% in August, as energy inflation climbed to 14.3% from 10.3%. Lagarde attributed the energy increase in particular to refining margins on liquid fuels and higher energy commodity prices. Inflation excluding energy and food edged down to 2.4%. The ECB’s September baseline projected average headline inflation of 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028.
Rate Policy Amid an Energy Shock
The hearing set out how the ECB is weighing higher energy costs against the risk that price pressures spread through the wider economy. Lagarde said the bank raised its three key interest rates by 25 basis points earlier in September to keep inflation on track to stabilise at its 2% medium-term target. The decision matters for households and firms because policy rates influence borrowing costs and, in turn, spending and investment.
She said the ECB does not respond mechanically to energy-price movements. Its assessment looks at the inflation outlook and risks, underlying inflation and whether energy costs are feeding into other prices and wages, as well as the way monetary policy affects borrowing and growth. Lagarde said the bank saw higher inflation ahead but, at the time of the hearing, no evidence that energy prices had become embedded in wages. She also said rising long-term interest rates could slow growth and reduce the pass-through of policy.
AI adds a longer-term policy question. Lagarde said firms were expected to devote around 10% of total investment to AI in 2026, and AI-related borrowing already accounted for roughly a quarter of credit growth to firms. These figures point to AI’s growing place in business finance, but do not by themselves establish how much productivity or inflation will change.
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AI Enters the Policy Debate
Lagarde framed AI as a technology with possible effects across production, business models and the labour market. She said it could improve Europe’s productivity, competitiveness and living standards, while also affecting investment, employment and inflation. Those channels connect the technology to the ECB’s work: changes in productivity and costs can shape economic growth and price pressures.
The speech placed the AI discussion alongside a near-term outlook clouded by an energy shock. The September ECB staff projections expected inflation to remain above the bank’s 2% target in 2026 and 2027 before reaching 2.1% in 2028. Lagarde said longer-term inflation expectations were mostly around 2%, while shorter-term expectations remained elevated. She described the overall outlook as highly uncertain, with risks of higher inflation and weaker growth.
“We do not react to energy prices, we react if we see risks of higher energy prices becoming embedded in inflation.”
— Christine Lagarde, ECB president
AI’s Economic Effects Remain Uncertain
Lagarde said AI’s overall macroeconomic effect was uncertain and that its influence would run through interconnected channels. The speech excerpt does not establish the size or timing of any resulting productivity gains, changes to employment or effects on inflation. The investment and credit figures describe activity in 2026; they do not show the eventual returns from AI adoption.
The near-term economic outlook also remains exposed to uncertainty. Lagarde said inflation risks were tilted upward and growth risks downward. Although the ECB had not seen evidence that the energy shock was feeding into higher wages, that assessment reflects the data available at the hearing and could change as prices and pay develop.
ECB to Track Prices and Wages
The ECB’s next decisions will depend on how incoming data affect its assessment of inflation, underlying price pressures and monetary-policy transmission. Lagarde said the bank would monitor whether higher energy costs spread to other prices and wages, while also tracking borrowing costs and their effects on economic activity.
The September staff projections provide the bank’s current baseline for growth and inflation, not a guarantee of future outcomes. Further evidence on energy prices, wages, investment and AI-related activity will help clarify whether the projected path holds and how the technology affects the euro area economy.
Key Questions
When did Lagarde address the European Parliament committee?
She spoke at the Committee on Economic and Monetary Affairs hearing in Brussels on 28 September 2026. The speech was published on 30 September.
Why did the ECB raise interest rates?
Lagarde said the ECB raised its three key rates by 25 basis points earlier in September to help ensure inflation stabilises at its 2% medium-term target. She cited higher inflation ahead, while saying the bank had not yet seen evidence of energy prices feeding into wages.
What happened to euro area inflation in August?
Headline inflation rose to 3.2% in August from 2.9% in July. Energy inflation increased to 14.3%, while inflation excluding energy and food edged down to 2.4%.
What did Lagarde say about AI and the economy?
She said AI could affect productivity, competitiveness, investment, labour markets and inflation. She also said its overall macroeconomic effect remains uncertain.
Source: primary
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