Lagarde: Eurozone Inflation Faces Upside Risks, No Second-Round Effects Observed
nashnova research
ECB President Lagarde said eurozone inflation will run well above target for the coming quarters, but no second-round effects have appeared — the door to a hike is open, yet the ECB chose to wait for more data.
Inflation is above target — why isn't the ECB rushing to act?
Lagarde said the inflation outlook faces upside risks and will stay well above target for the coming quarters.
But she stressed that no second-round effects have been observed — meaning price rises have not yet triggered a wage-price spiral (prices go up → wages follow → wages push prices higher again).
This means → inflation is still a first-layer problem: energy costs pushing prices up directly. It has not spread into wages or the broader economy. The ECB sees the situation as still manageable, so it is not rushing to hike.
What has the energy price surge done so far?
A fresh wave of energy price increases has hit consumer confidence, overshooting the ECB's baseline forecast.
Yet underlying inflation — price changes excluding energy and food — remains broadly stable.
In plain terms = fuel and electricity bills are up, consumers feel it and are pulling back on spending, but the price surge has not yet infected other goods and services.
Will wages follow prices higher?
Lagarde said wage pressures remain moderate; negotiated wage growth is expected to stay in the 2.5%–2.8% range for the rest of the year.
This means → wages are not chasing prices up — and that is the core evidence behind the ECB's judgment that second-round effects have not appeared.
If that number starts climbing meaningfully, the ECB's patience could run out fast.
Can economic growth hold up?
Data show the eurozone economy continued to expand in Q3, and exports are expected to recover somewhat.
But growth faces downside risks — put simply, the economy is still moving, but unsteadily, and could slow at any time.
This reflects the ECB's dilemma: inflation calls for tighter policy, while fragile growth calls for caution.
What would actually trigger the next hike?
The Governing Council discussed whether a rate hike was appropriate; officials agreed the ECB stands ready to act but chose to wait for more data.
Lagarde emphasized that a cautious, gradual approach remains the right path for now.
This means → the ECB has drawn two watch-lines: whether energy price rises transmit into core inflation, and whether second-round effects emerge. If either trips, the pace of tightening could accelerate.
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