ECB president Christine Lagarde says the euro area's inflation shock is lasting longer than policymakers expected, blaming the Iran war and lost Russian refining capacity for persistent energy-price pressure. The remarks come days after the ECB raised its deposit rate to 2.5%, with Bundesbank chief Joachim Nagel flagging further tightening ahead.
Christine Lagarde told regional newspaper Ouest-France in an interview published Saturday that the current inflation shock is longer lasting than the ECB had anticipated, pointing to the ongoing Iran war as the main driver of continued price pressure. According to investinglive.com: "The current shock is longer lasting," she said, adding that energy-market volatility is likely to persist even as higher costs raise the risk of slower growth.
ECB lifts rates to 2.5%
The comments follow the ECB's decision this week to raise interest rates for the second time since the Iran war began pushing oil and gas prices sharply higher, taking the deposit rate to 2.5%. Euro-area inflation currently sits above 3%, and officials expect further tightening may be required to bring price growth back toward the ECB's 2% target. Lagarde attributed the energy cost increase to both the Iran war and the destruction of refining capacity globally, singling out Russia, and said the resilience of the euro-area economy means the central bank is obliged to keep responding.
Bundesbank president Joachim Nagel said Friday that borrowing costs may need to move into mildly restrictive territory to bring inflation under control. His view aligns with new ECB projections published Thursday showing faster inflation through 2027 and 2028, with 2028 now expected to sit slightly above target. The ECB also revised growth forecasts higher, reflecting the euro-area economy's resilience to both the Middle East conflict and separate headwinds from US trade policy.
AI valuations and French politics
Lagarde also addressed stretched valuations in the artificial intelligence sector, saying current pricing is very high and that the wave of planned initial public offerings in the space is evidence of that. She flagged a circularity risk in which AI companies take stakes in one another and then award each other contracts for products such as microchips, and said a correction is possible, though she declined to say when. She added that European banks hold AI-related assets but are considerably stronger than in previous cycles.
On domestic French politics, Lagarde called for planned structural reforms to be carried through and reiterated her opposition to proposals from the French far left to cancel government debt held by central banks, describing the idea as financially dangerous. She played down the prospect of entering France's presidential race as unlikely, and ruled out a return to national politics after her ECB term, noting she will soon turn 71. Lagarde confirmed she intends to leave the ECB next year, without clarifying whether that means serving out her term through October 2027.
Source: Investinglive
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