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ECB President Christine Lagarde said euro area headline inflation reached 4% in October, driven largely by higher energy costs, while core inflation remained at 2.5%. In an interview with Japan’s Yomiuri Shimbun, she said the ECB was not seeing evidence of broader wage-driven second-round effects and would set policy based on incoming data.
European Central Bank President Christine Lagarde said euro area headline inflation rose to 4% in October, largely because energy inflation accelerated, while underlying price measures remained comparatively stable. In an interview with Japan’s Yomiuri Shimbun, published November 7, she said the ECB was watching for broader price pressures but had not seen evidence of second-round effects beyond those included in its projections.
Lagarde attributed much of October’s inflation reading to energy. She said energy inflation reached 20.8%, up 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 rose slightly to 3.3%, within the range seen over the previous four months, she said.
The ECB had not yet received the detailed inflation breakdown, Lagarde said, leaving it unclear whether services price pressures were concentrated in energy-intensive areas such as transport or were spreading more widely. She said inflation was expected to remain high in coming quarters and warned that the risk to the ECB’s medium-term target grows if elevated readings persist.
Lagarde said the bank was monitoring multi-year wage agreements and company wage expectations for signs of second-round effects, but was not seeing evidence of a shift. She declined to anticipate the next forecast, noting that energy futures had risen since the September projections, while oil prices had more recently fallen and long-term interest rates had increased. The ECB’s upcoming forecast exercise would assess how those forces affect medium-term inflation and growth.
Energy Costs Complicate the Inflation Outlook
The interview highlights a policy challenge for the ECB: headline inflation has risen, but the available figures do not yet show whether the increase is spreading beyond energy and food. Energy-driven inflation can raise costs directly, while sustained price increases may also affect wages and prices across other sectors. Lagarde said the ECB was not yet seeing evidence of that broader wage-related process, but stressed that the duration of high inflation matters.
Her comments also indicate why the 4% figure alone does not settle the question of interest rates. The ECB must weigh current price data against the outlook for energy, growth, wages and other costs. Lagarde said policy decisions would be shaped by data as it arrives, rather than by a pre-commitment based on one monthly reading.
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Lessons From the 2021 Energy Shock
Asked about criticism that the ECB and other central banks reacted too slowly to the inflation surge that followed the energy shock and Russia’s invasion of Ukraine, Lagarde said policymakers had initially viewed the supply shock as temporary. She recalled discussions involving the Federal Reserve, Bank of England, Bank of Japan and ECB, where officials expected supply-driven inflation to reverse.
In hindsight, she said, that assessment was mistaken because a demand shock was occurring at the same time: economies were reopening and consumers were spending savings accumulated during the pandemic. Lagarde described the current environment as marked by uncertainty, trade and supply-chain disruptions, and a greater focus on security over efficiency. She said those changes make it difficult to predict how shocks will affect prices and economic activity.
The interview also covered women’s representation. Lagarde said two women sat among 27 people at ECB Governing Council meetings: herself and Executive Board member Isabel Schnabel, who, according to Lagarde, was due to leave at the beginning of January. She attributed the limited representation partly to a still-developing pipeline of senior women and a tendency among decision-makers to appoint people who resemble themselves.
“It’s largely attributable to energy.”
— Christine Lagarde, ECB president, in the Yomiuri Shimbun interview
Services Pressures and Forecast Risks
The detailed breakdown of October inflation was not yet available when Lagarde gave the interview. That means the source of the rise in services inflation — whether it is concentrated in energy-intensive sectors or reflects broader indirect effects — remained unresolved. The interview also did not provide the ECB’s next inflation forecast or a decision on interest rates.
Lagarde said higher energy futures and long-term interest rates had changed since the September projections, while oil prices had fallen more recently. How those developments will affect medium-term inflation and growth is still to be assessed. She also said the ECB was not seeing a shift in forward-looking wage indicators, but continued monitoring them.
ECB to Reassess Data and Projections
The ECB’s forecast exercise is expected to evaluate how changed energy-market expectations, interest rates and other developments affect its outlook for inflation and growth. Lagarde said policymakers would examine incoming data and the detailed inflation breakdown before drawing conclusions about the persistence and spread of price pressures.
For now, she did not signal a specific interest-rate move. The next policy implications depend on whether inflation remains elevated, whether services pressures broaden, and whether wage indicators begin to show second-round effects.
Key Questions
What did Lagarde say about euro area inflation in October?
She said headline inflation was 4%, higher than the ECB had expected a few months earlier but in line with market expectations. She attributed much of it to energy costs.
Did underlying inflation rise?
Lagarde said core inflation was 2.5%, unchanged from September. Services inflation edged up to 3.3%, while the detailed breakdown was not yet available.
Is the ECB seeing second-round effects?
Lagarde said the ECB was not seeing signs beyond those included in its projections. She said officials were monitoring wage agreements and company wage expectations.
Did Lagarde announce an interest-rate decision?
No. She did not announce a rate change or pre-empt the next forecast. She said the ECB would assess incoming data and how changed economic conditions affect its inflation outlook.
What did Lagarde say about women at the ECB?
She said two of 27 Governing Council members were women: Lagarde and Isabel Schnabel. She described the imbalance as a challenge and discussed how appointment patterns can perpetuate it.
Source: ecb.europa.eu
