ECB's Lagarde Warns of Impact of Prolonged Energy Shock

3/25/2026 12:54:23 PM	short term up	5 days later	+7.30%	+7.30%

12/8/2025 2:37:40 PM	medium term up	20 days later	-1.67%	-1.67%

Christine Lagarde

Inflation rose to 3.2% in May from 3% in April, with energy price inflation ticking up to 10.9% and core inflation (excluding energy and food) picking up to 2.5% from 2.2%.

Goods inflation edged up to 0.9% and services inflation increased from 3% to 3.5%, while domestic cost pressures eased in Q1 due to slower growth in wages and profits.

Christine Lagarde

The ECB's wage tracker and surveys indicate that wage growth should ease over the year.

Christine Lagarde

It is becoming more expensive for firms to source other inputs, leading them to expect to raise selling prices. Some indicators of underlying inflation have already been driven higher by the energy shock.

Inflation expectations over shorter horizons remain well above pre-Middle East war levels, while longer-term expectations stand at around 2%.

Christine Lagarde

The increase in energy prices will lift inflation further over the summer and keep it well above target into the first half of 2027, impacting food, goods, and services inflation.

Inflation should return to target in the second half of 2027, supported by falling energy prices and slower increases in other prices.

Christine Lagarde

The war in the Middle East remains a major source of uncertainty; the longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects.

We will closely monitor the size and persistence of the energy price increase and how it feeds through to price and wage setting, inflation expectations, and overall economic dynamics.

Christine Lagarde

The risks to the inflation outlook are to the upside. If energy prices rise by more and for longer than expected, euro area inflation would increase further.

This could be reinforced and become more persistent if higher energy prices spill over more than expected to other prices and wages, if longer-term inflation expectations rise, or if global supply chains are disrupted more broadly.

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