Euro zone inflation has topped 3% and may approach 4% by year-end, but ECB chief Christine Lagarde said a measured response remains appropriate. She cited oil and gas as the main driver and said there is no evidence yet of wage spillover or inflation becoming entrenched.
Lagarde attributed the oil and gas surge to the US-Iran conflict; inflation near 4% would be twice the ECB’s target. She said the shock was too large to ignore and warned of high uncertainty, with risks tilted toward higher inflation. Markets were betting on up to four more rate hikes over the next year, after two over the summer. Many economists expect the ECB to hold rates at its October 29 meeting and raise them in December, when new projections are due.
Lagarde also described manufacturing as solid, the labour market as robust and investment as a support for growth.
