Lagarde: “Inflation outlook remains more uncertain than usual”

Brussels – The situation remains unchanged: too many variables. Christine Lagarde wants to be clear, in her speech to the Economic Affairs Committee of the European Parliament: “The outlook for inflation in the euro area remains more uncertain than usual, with a still volatile global trade policy environment responsible for both upside and downside risks,” warns the President of the European Central Bank during the monetary dialogue with MEPs. This also makes it more complicated to understand how to move. This is not a new concept, which she already expressed at the end of June. 

The US administration’s threatened tariffs on ‘made in EU’ first produced an increase in trade flows to avoid tariffs, then a slowdown for already built-up stocks. So, in the first half of 2025, the economy grew by 0.7 per cent, Lagarde recalls, and then slowed down. “Risks to economic growth have become more balanced as the likelihood of the main downside risks related to tariffs materialising has diminished, due to the new trade agreement.” However, she points out, there remain “risks that renewed trade tensions could further dampen exports, investment, and consumption”. 

The outlook is as of September. Regarding Eurozone growth, the ECB staff forecasts a 1.2 per cent increase in 2025 (compared to 0.9 per cent in the June forecast), 1 per cent in 2026 (compared to 1.1 per cent in the June forecast) and 1.3 per cent in 2027 (stable). 

https://www.eunews.it/en/2025/10/02/eurozone-trumps-tariffs-lead-to-fewer-investments-and-reduced-bank-lending/

Inflation decline is over, rate cut discounted

While with regard to inflation, estimates point to 2.1 per cent in 2025 (up from 2 per cent in the June forecast), 1.7 per cent in 2026 (up from 1.6 per cent in the June forecast) and 1.9 per cent in 2027 (up from 2 per cent in the June forecast). Here Lagarde wants to be clear: “With inflation currently around 2 per cent and expected to remain around that level beyond the projection horizon, we can say that the disinflationary process is over.” It means that the case for cutting the cost of borrowing money is also gone. 

Faced with rising inflation, the ECB adopted a decisive monetary policy of raising interest rates to calm domestic consumption. By cooling demand, prices fell, and with falling inflation, the ECB was able to start reducing the previously raised interest rates. With the disinflationary process at a standstill, the case for continuing to reduce interest rates is weakened.