Speaking at a hearing of the European Parliament's Committee on Economic and Monetary Affairs in Brussels, Lagarde said the ECB raised its three key interest rates by 25 basis points earlier this month. The central bank does not react to energy prices themselves, but to the risk that higher energy costs could become embedded in inflation, she said, Xinhua reported.
Euro area headline inflation rose to 3.2 percent in August from 2.9 percent in July, while energy inflation climbed to 14.3 percent from 10.3 percent. According to the ECB's September staff projections, headline inflation is expected to average 3.0 percent in 2026, 2.5 percent in 2027 and 2.1 percent in 2028. Economic growth is projected at 0.9 percent, 1.4 percent and 1.5 percent, respectively, over the same period.
Lagarde said the inflation outlook for 2027 and 2028 is higher than projected a few months ago, mainly due to higher energy prices. However, there is currently no evidence that higher energy costs are feeding through into stronger wage growth.
She added that while the energy shock is too large to be ignored, a measured policy response remains appropriate to keep inflation in check.
"The outlook continues to be surrounded by high uncertainty, with upside risks for inflation and downside risks for economic growth," Lagarde said.