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Lagarde warns an energy shock could further complicate inflation outlook

Lagarde said the ECB left key rates unchanged in July, and she linked inflation and inflation expectations to interest rate decisions that can move markets and currencies.

Reported · Written up by our desk · Central Banks

Christine Lagarde, president of the European Central Bank, said an energy shock could intensify and further complicate the inflation outlook, during a question-and-answer session following the ECB’s July policy meeting.

Lagarde discussed how the ECB distinguishes between headline inflation and core inflation, noting that core measures exclude more volatile items like food and fuel and are the focus of central bank targeting, typically around a 2% objective.

She also reiterated the interest-rate transmission logic, saying higher inflation can lead to higher rates as policymakers try to contain price pressures, which can affect capital flows and strengthen a currency, while lower inflation tends to pull rates down.

In a broader market context, the ECB chief added that higher interest rates are generally negative for gold due to the opportunity cost versus interest-bearing assets, while lower inflation can be supportive as rates fall.

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