ECB chief also warns that 'the situation remains fragile, with risks of setbacks or possibly re-escalation'
The Iran war’s economic impact on Europe appears to be “sizeable but not too persistent”, Christine Lagarde has said, as hopes rise for a peace deal between Washington and Tehran.
Speaking to MEPs on Monday, the European Central Bank president said the recent surge in inflation – which caused the ECB to hike rates for the first time since 2023 earlier this month – was not “small and temporary” enough to be “looked through”.
However, Lagarde also stressed that there is “no evidence” that the conflict has triggered so-called second-round effects, whereby soaring commodity costs lead businesses to raise prices and employees to demand higher wages. Long-term inflation expectations have also not become “de-anchored” from the ECB’s 2% target rate, she added.
“The shock is too large to look through without jeopardising our target,” Lagarde told the Parliament’s economic and monetary affairs committee. “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.”
