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ECB President Christine Lagarde told the European Parliament’s economic affairs committee that the ECB raised its three key interest rates by 25 basis points earlier in September. She said the decision reflected higher inflation risks from an energy shock, while the ECB had not yet seen evidence that higher energy prices were feeding into wages. Lagarde also described AI’s potential to affect productivity, investment, jobs and inflation, while stressing that its overall economic effects remain uncertain.
European Central Bank President Christine Lagarde told European Parliament lawmakers on September 28 that the ECB had raised its three key interest rates by 25 basis points earlier that month, citing higher inflation risks tied mainly to energy prices. She also said artificial intelligence could reshape investment, work and productivity across Europe, with consequences for inflation and monetary policy that remain uncertain.
Lagarde spoke at a hearing of the European Parliament’s Committee on Economic and Monetary Affairs in Brussels. She said the ECB’s September decision was guided by its aim to bring inflation back to 2% over the medium term. The bank does not respond mechanically to energy-price movements, she said; it watches for signs that those movements are becoming embedded in broader inflation.
The ECB’s assessment considers the inflation outlook and its risks, underlying inflation—including whether energy costs are feeding into other prices and wages—and how monetary policy passes through to borrowing costs and economic growth. Lagarde said inflation was expected to be higher in 2027 and 2028 than projected a few months earlier, largely because of energy prices. However, she said the ECB had not yet seen evidence of a material wage response to the shock. Higher long-term interest rates since the bank’s previous meeting were also expected to weigh on growth.
Euro area headline inflation reached 3.2% in August, up from 2.9% in July, according to the figures Lagarde cited. Energy inflation rose to 14.3% from 10.3%, while inflation excluding energy and food edged down to 2.4%. Compensation per employee grew 3.3% in the second quarter, compared with 3.6% in the first. The September ECB staff baseline projected economic growth of 0.9% in 2026 and headline inflation averaging 3.0% that year; these are projections, not confirmed outcomes.
Rate Policy Meets Energy and AI
The rate increase reflects a central policy challenge: energy costs can lift inflation, but raising rates also affects borrowing and growth. Lagarde described the ECB’s response as measured because the shock was too large to ignore, while the bank had not yet seen signs that it was spreading into wages. Whether that changes will shape future policy decisions.
AI adds another uncertainty for the outlook. Lagarde said firms were expected to devote around 10% of total investment to AI in 2026, and AI-related borrowing already represented roughly a quarter of credit growth to firms. Those figures point to growing economic activity linked to the technology, but they do not establish how much productivity or inflation will change. The effects could influence businesses, workers and monetary policy through several channels.
The ECB’s September Outlook
The hearing was part of the ECB president’s regular dialogue with the committee. In her remarks, Lagarde said the euro area had shown resilience despite an energy shock: real GDP grew solidly in the second quarter of 2026, with growth across most countries and sectors. She said the pattern was expected to continue into the third quarter. Manufacturing had support from higher public spending on defence and infrastructure, while consumer confidence had recovered from low spring levels.
The September staff projections put growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. They put average headline inflation at 3.0%, 2.5% and 2.1% in those years, respectively. Lagarde also reported unemployment of 6.4% in July, while noting that employment and labour-force growth were slowing. She said the outlook remained highly uncertain, with upside risks to inflation and downside risks to growth.
“We do not react to energy prices, we react if we see risks of higher energy prices becoming embedded in inflation.”
— Christine Lagarde, ECB president, at the European Parliament hearing
Signals the ECB Is Watching
It remains unclear how long the energy shock will persist or whether it will spread to wages and prices beyond energy. Lagarde said the ECB had seen no material wage response so far, but the outlook includes inflation risks on the upside and growth risks on the downside. The supplied speech excerpt does not specify what future data would trigger another change in rates.
The excerpt also begins Lagarde’s discussion of AI but cuts off before detailing the channels she planned to examine. It therefore does not provide her full analysis of AI’s effects on prices, employment or output. The investment and credit figures she cited do not, by themselves, show the scale or timing of AI’s impact on productivity.
Future Data and Policy Decisions
The ECB’s next decisions will depend on incoming evidence about the inflation outlook, underlying price and wage dynamics, and the transmission of interest rates through the economy. Lagarde said the bank remained on what she called the “middle path”: a measured response intended to keep inflation in check while accounting for the growth effects of higher rates.
The September staff projections provide the ECB’s baseline for growth and inflation through 2028, but Lagarde stressed that uncertainty remains high. Future inflation readings, wage data and evidence about energy-price pass-through will show whether the current assessment still holds. The supplied material gives no date for a specific next policy decision.
Key Questions
What did Lagarde tell the European Parliament committee?
She explained the ECB’s recent 25-basis-point increase in its three key interest rates and discussed possible effects of AI on the economy and monetary policy.
Why did the ECB raise interest rates?
Lagarde said the bank acted to keep inflation on track toward its 2% medium-term target amid a rise in energy prices and higher inflation projections. She said the ECB had not yet seen evidence that energy costs were feeding into higher wages.
What were euro area inflation and growth projections?
The September ECB staff baseline projected average headline inflation of 3.0% in 2026 and economic growth of 0.9% that year. These are forecasts, not final results.
What did Lagarde say about AI’s economic effects?
She said AI could reshape production, business models and economic structures, and could affect investment, labour markets and inflation. She described its overall macroeconomic effect as uncertain.
Source: primary
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