ECB's Lagarde plays down second-round inflation fears

FRANKFURT - The inflation shock facing the euro zone is too large to ignore but not large enough to push up longer-term price expectations or generate dangerous second-round effects, European Central Bank President Christine Lagarde said on Monday.

The ECB raised interest rates earlier this month after inflation rose above 3%, and investors are now speculating whether the bank will move again to contain price pressures and prevent expectations from moving away from its 2% target.

Lagarde, who earlier described three scenarios for action, said on Monday the currency bloc was experiencing the middle scenario of a not-too-persistent overshoot that required some measured policy adjustment.

"For now, we are in the second case," she told a European Parliament committee hearing. "The shock is too large to look through without jeopardising our target."

"But we see no evidence yet of de-anchoring of inflation expectations or second-round effects that would warrant a more forceful policy response at this stage," Lagarde added.

The current shock appears to be smaller than the 2021/22 episode when the bank had to raise rates at a record pace, she said, and the context is also different given a stronger labour market, higher incomes and post-pandemic supply challenges.

Still, the ECB must not be complacent because wage formation may be more sensitive to new shocks given the bloc's recent experience with high inflation, Lagarde added.

Repeating the bank's outlook for growth, Lagarde argued that investment, particularly into AI, was holding up and households also had strong balance sheets, providing some cushion for an economy that is still bound to suffer from the fallout of higher energy costs.

"The outlook remains uncertain, with upside risks for inflation and downside risks for economic growth," Lagarde said.

(Reporting by Balazs KoranyiEditing by Gareth Jones)

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This story was originally published June 22, 2026 at 9:06 AM.