Lagarde: Inflation to Remain Elevated in the Short Term, December Rate Hike Direction Unchanged
nashnova research
ECB President Lagarde said inflation will remain high for several quarters, with October core CPI flat at 2.5%; barring a major shift, the December rate hike stays on course — pushing borrowing costs to the top of the neutral range.
How stubborn is eurozone inflation?
October core inflation held at 2.5%; headline inflation ran roughly twice the ECB's 2% target.
Lagarde was direct: inflation will stay elevated for quarters to come. "The higher it is, the longer it lasts, the greater the risk to our medium-term objective."
This means → the ECB now treats duration of inflation as its own risk factor — not just the level, but how long it persists.
Are wages about to push inflation into a second round?
Lagarde said she has not yet seen wage-pass-through pressure beyond expectations — the so-called "second-round effects" (inflation drives up prices, then wages, then wages push prices higher again in a loop).
The ECB is tracking forward-looking indicators — multi-year wage agreements and corporate pay expectations — and "has not yet seen signs of a shift."
In plain terms = wages have not chased prices upward, so inflation remains cost-push, not self-reinforcing — for now.
Will the ECB actually hike in December?
Lagarde chose her words carefully: "Unless there is a material change, the direction of travel will not be different." This means → a 25-basis-point hike is effectively the baseline.
Several ECB officials have already backed a December hike publicly; the bank has raised rates twice in a row, driven by the Iran conflict pushing up energy costs.
But another hike would push borrowing costs to the top of the neutral-rate band — the level considered neither stimulative nor restrictive. Combined with a recent jump in global bond yields, whether the eurozone economy can absorb further tightening remains the central variable.
Lagarde is leaving — who takes over?
Lagarde announced last month she will step down in February, roughly nine months early.
The Eurogroup president has confirmed two candidates: Dutch central-bank governor Klaas Knot and Spanish central-bank governor Pablo Hernández de Cos.
This reflects a leadership transition at the ECB arriving at a critical juncture for inflation and rate policy — the next president's stance will directly shape the rate path ahead.
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