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ECB President Christine Lagarde told the European Parliament’s economic affairs committee that the central bank raised its three key rates by 25 basis points earlier in September. She cited higher energy costs and inflation risks, while saying there was not yet evidence that the shock was feeding into wages. Lagarde also discussed artificial intelligence’s potential economic effects, which she said remain uncertain.
European Central Bank President Christine Lagarde told European Parliament lawmakers on 28 September that the ECB had raised its three key interest rates by 25 basis points earlier this month, citing higher energy costs and the risk that inflation could remain elevated. She said the bank saw no evidence at that point that the energy shock was feeding into higher wages, and also warned that artificial intelligence’s broader economic effects remain uncertain.
In remarks to the Parliament’s Committee on Economic and Monetary Affairs in Brussels, Lagarde said the euro-area economy had shown resilience despite an energy shock. Real GDP grew solidly in the second quarter of 2026, and the ECB expected that broad pattern to continue in the third quarter. Manufacturing was supported by government defence and infrastructure spending, while consumer confidence had rebounded from its spring lows. Lagarde said AI-related activity was visible in digital services, business investment and exports.
The labour market remained robust, with unemployment at 6.4% in July, although employment and labour-force growth were slowing. Euro-area headline inflation rose to 3.2% in August from 2.9% in July. Energy inflation increased to 14.3%, while inflation excluding energy and food edged down to 2.4%. Compensation per employee grew 3.3% in the second quarter, down from 3.6% in the first.
Lagarde said the ECB assessed the inflation outlook, underlying inflation and the transmission of monetary policy when weighing energy shocks. The bank’s September projections put euro-area economic growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Its baseline forecast for headline inflation was 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. These are projections, not reported outcomes.
Energy Costs Shape ECB Rate Decision
The rate increase reflects the ECB’s concern that higher energy prices could keep inflation above its 2% medium-term target. Lagarde said the bank does not respond to energy prices alone; it responds when there are risks that their effects become embedded in inflation. That distinction matters for households and businesses because persistent price pressure could affect borrowing costs and spending beyond the initial energy shock.
The outlook contains competing pressures. The ECB expects growth to continue, but Lagarde said long-term interest rates had risen notably since the bank’s previous meeting, a development she said would weigh on growth. Meanwhile, the September projections put inflation above target through 2028. The figures give lawmakers and markets a basis for understanding the decision, while the bank’s emphasis on incoming evidence leaves future policy dependent on how prices and economic activity evolve.
AI is another policy concern raised at the hearing. Lagarde said firms were set to devote around 10% of total investment to AI in 2026, and that AI-related borrowing accounted for roughly a quarter of credit growth to firms. She described potential gains in productivity and living standards, alongside possible effects on investment, labour markets and inflation. These figures describe the estimates in her remarks; the excerpt does not provide their underlying measurement details.
Inflation and AI in ECB Outlook
Lagarde presented the hearing as part of the ECB’s regular dialogue with the European Parliament. Her remarks covered the September policy decision and the euro-area outlook before turning to AI’s possible macroeconomic effects. The supplied speech excerpt ends during that AI discussion, so it does not contain the full account of the channels or risks she went on to describe.
The economic picture she outlined mixed resilience with pressure. The ECB expected household consumption to benefit from gradually falling energy prices and a robust labour market, and saw business and housing investment supporting growth over time. It also expected stronger foreign demand to help exports. Against that, the September projections reflected higher inflation than the ECB had expected a few months earlier, primarily because of energy prices.
Lagarde said most measures of longer-term inflation expectations stood at around 2%, while shorter-term expectations remained elevated. She described the longer-term readings as supportive of inflation stabilising around target in the medium term. The speech also noted that food inflation fell to 1.1% in August from 1.2% in July, as energy inflation rose sharply.
“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
Wage Effects and AI Impact Unsettled
Lagarde said there was no evidence at that stage that higher energy prices were feeding into wages. That is a description of the evidence available at the hearing, not a guarantee that wage effects will not emerge. The ECB also said the outlook was surrounded by high uncertainty, with upside risks for inflation and downside risks for growth.
The supplied speech text stops partway through Lagarde’s discussion of AI. It therefore does not establish her full assessment of how AI could affect prices, jobs or productivity, or when those effects might be measurable. The cited investment and lending figures are presented without further methodological detail in the excerpt. It is also not clear from the provided material how lawmakers responded during the hearing.
ECB to Weigh Incoming Data
The ECB’s next policy decisions will depend on its assessment of the inflation outlook, underlying price dynamics and how rate changes affect borrowing costs and growth. Lagarde said the bank considered a measured response appropriate because the energy shock was too large to ignore, while noting that it had not yet become embedded in inflation. The September forecasts provide the bank’s baseline, but the speech does not specify a date or outcome for its next decision.
Further data on energy prices, wages, inflation expectations and economic activity will show whether the risks described at the hearing are changing. The full speech and any subsequent ECB communications may also provide more detail on how officials assess AI’s effects on the economy.
Key Questions
What did Lagarde tell the European Parliament?
She discussed the euro-area outlook, the ECB’s September interest-rate increase and the possible economic effects of AI. She said higher energy prices had lifted the inflation outlook, while the ECB had not seen evidence of the shock feeding into wages.
Why did the ECB raise interest rates?
Lagarde said the ECB raised its three key rates by 25 basis points earlier in September as it sought to keep inflation on track to stabilise at its 2% medium-term target. She cited higher energy prices and the risk they could become embedded in inflation.
What were the latest inflation figures cited?
Euro-area headline inflation was 3.2% in August, up from 2.9% in July. Energy inflation rose to 14.3%, while inflation excluding energy and food edged down to 2.4%, according to the figures in Lagarde’s remarks.
What did Lagarde say about AI?
She said AI could affect productivity, competitiveness and living standards, as well as investment, labour markets and inflation. She also said its overall macroeconomic effect was uncertain. The supplied excerpt ends during her AI discussion.
Source: primary
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