ECB's Lagarde: Energy shock too large to look through, measured response appropriate
ECB President Christine Lagarde told the IMFC that the energy shock is too large to ignore but a measured policy response remains appropriate, with inflation risks to the upside.
What you need to know
ECB President Christine Lagarde said the energy shock is too large to look through, but a measured response remains appropriate to keep inflation in check. She spoke at the IMF Annual Meetings in Washington on 17 October 2026, noting that September headline inflation rose to 3.8% and risks to growth remain to the downside.
- Lagarde said the energy shock is too large to look through, but a measured policy response remains appropriate.
- September headline inflation rose to 3.8%, mostly due to energy, with core inflation at 2.5%.
- The ECB raised key interest rates by 25 basis points in September, following a similar increase in June.
Inflation and policy
Lagarde said headline inflation increased to 3.8% in September, largely reflecting a surge in energy inflation and, to a lesser extent, higher food and services inflation. Core inflation rose slightly to 2.5%. She said higher energy prices are expected to keep headline inflation well above target into the first half of 2027 and to feed gradually into core and food inflation, with headline inflation returning to around target towards the end of 2027.
The Governing Council raised key ECB interest rates by 25 basis points in September, after a same-sized increase in June. Lagarde said the inflation outlook points to higher inflation ahead, especially in the short term, but there is no evidence at this stage of significant pass-through of energy prices to other prices and wages beyond what is already in the projections. She said financing conditions have tightened, with long-term interest rates rising notably since the last meeting.
Growth and financial stability
Lagarde said the euro area economy has proved resilient despite global headwinds and the energy shock, with broad-based growth across most countries and sectors in the first half of 2026. September ECB staff projections foresee growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Risks to growth are assessed to be on the downside, amid uncertainty over the Middle East conflict.
On financial stability, Lagarde said risks remain high, citing geopolitical tensions, fiscal challenges and uncertainties around accelerated AI adoption. She said euro area banks maintain strong capital and liquidity buffers and robust profitability, but shocks could expose vulnerabilities among non-bank financial intermediaries, notably from concentrated AI-related exposures.
What did Lagarde say about the ECB's response to the energy shock?
Lagarde said the energy shock is too large to look through, but a measured response remains appropriate to keep inflation in check, based on the ECB's three-criteria reaction function.
Sources & context
- IMFC Statement ↗ecb.europa.eu
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