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In a statement to the IMF’s International Monetary and Financial Committee on October 17, 2026, ECB President Christine Lagarde said the euro area had remained resilient but faced downside growth risks and upside inflation risks from the Middle East conflict and energy prices. She cited September inflation of 3.8% and two 25-basis-point rate increases in June and September, while saying future policy would depend on incoming data.
European Central Bank President Christine Lagarde told the International Monetary and Financial Committee on October 17 that the euro-area economy had remained resilient despite global uncertainty, but that the Middle East conflict and resulting energy-price swings posed risks of weaker growth and higher inflation. Her statement set out the ECB’s outlook and policy approach as headline inflation rose and the Governing Council raised interest rates in September.
Lagarde’s statement, delivered at the IMF Annual Meetings, said growth had been broad-based across most euro-area countries and sectors during the first half of 2026. The ECB’s September staff projections forecast economic growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. The bank expects domestic demand to benefit over time from recovering real incomes as energy inflation eases, alongside government spending on infrastructure and defence and investment in artificial intelligence and digital technology.
Inflation was a central concern. Lagarde reported that headline inflation reached 3.8% in September, mainly because of a surge in energy inflation, with food and services also contributing. Core inflation rose slightly to 2.5%. She said underlying inflation measures were broadly stable and wages had not yet shown a material response to the energy shock.
The ECB Governing Council raised its key interest rates by 25 basis points in September, following a rise of the same size in June, as described in Lagarde’s monetary policy statement. Lagarde said higher energy prices were expected to keep headline inflation well above the ECB’s target into the first half of 2027, before it declines and returns to around target toward the end of that year. She said future decisions would reflect incoming data and the bank’s assessment of inflation, underlying price pressures and monetary-policy transmission, themes also addressed in an interview with Lagarde.
Energy Shock Tests ECB Policy
The statement matters because it describes how the ECB is weighing an energy-driven rise in prices against signs that tighter financing conditions may slow activity. Lagarde said the shock was too large to ignore, but that a measured response remained appropriate. That leaves the bank focused on whether higher energy costs spread more broadly into wages and other prices, rather than responding to energy inflation alone.
For households and businesses, the outlook points to a period in which energy costs may keep inflation elevated even as borrowing conditions tighten. The ECB’s projections also suggest that growth is expected to remain positive, though the bank assesses risks to growth as tilted to the downside. The statement does not announce a new rate decision; it explains the Council’s September actions and the framework for later decisions.
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September Outlook and Rate Decisions
The statement followed two consecutive ECB rate increases: 25 basis points in June and another 25 basis points in September. Lagarde said the Governing Council’s policy assessment considers the inflation outlook and its risks, the course of underlying inflation, and the strength of monetary-policy transmission. The ECB noted that long-term interest rates had risen notably since its previous meeting, tightening financing conditions.
Beyond monetary policy, Lagarde called for sound public finances, compliance with fiscal rules and temporary, targeted responses to the energy shock. She also pointed to structural priorities including greater labour-market participation, workforce skills for an AI-driven economy, improved access to risk capital and better conditions for innovative firms to grow across the Single Market. The statement also noted that more than 30 central banks had expressed interest in the enhanced Eurosystem repo facility, EUREP, over the preceding six months.
“The global economy has proven surprisingly resilient in the face of high uncertainty.”
— Christine Lagarde, ECB president, in her IMFC statement
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Inflation Path Depends on Energy
The statement does not establish how long or how intensely the Middle East conflict will affect energy markets. Lagarde said that uncertainty could alter how shocks pass through the economy. A more persistent energy shock could strengthen indirect price effects and second-round inflation, while a lasting resolution of geopolitical conflicts or weaker energy pass-through could reduce inflation pressures.
It is also not yet clear whether energy costs will begin to feed materially into wages and a wider range of prices. Lagarde said the ECB had seen no significant pass-through beyond what was already included in its projections. The outlook for growth and inflation therefore remains conditional, and the statement gives no commitment to a particular next interest-rate move.
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ECB Decisions Await Incoming Data
The ECB Governing Council will continue to assess incoming economic and financial data against its stated reaction function. The statement does not specify a date or outcome for a future rate decision. Investors, borrowers and policymakers will be watching energy prices, wage developments, underlying inflation and financing conditions for signs that the shock is spreading or easing.
The ECB’s projections point to headline inflation declining after the first quarter of 2027 and returning to around target toward the end of that year, but that forecast depends on how energy inflation develops. The next policy steps remain open, with Lagarde saying the Council would make a comprehensive assessment as new information becomes available.
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Key Questions
What did Christine Lagarde say in her IMFC statement?
Lagarde said the euro-area economy had been resilient, but warned that the Middle East conflict and energy-price volatility raised risks to growth and inflation. She also outlined the ECB’s recent rate decisions and its data-based approach to future policy.
What was euro-area inflation in September?
Lagarde reported that headline inflation was 3.8% in September 2026, driven mostly by energy inflation. Core inflation was 2.5%.
Did Lagarde announce a new interest-rate increase?
No. The statement reported that the ECB raised key rates by 25 basis points in June and again in September. It did not announce a new rate decision or commit to a future move.
When does the ECB expect inflation to return to around target?
The ECB’s stated outlook expects headline inflation to decline after the first quarter of 2027 and return to around target toward the end of 2027. Lagarde said the outlook carries risks, especially if the energy shock becomes more intense or persistent.
Source: primary
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