Lagarde, ECB President: The ECB Cannot Wait to Fully Observe the Secondary Effects of Inflation

Lagarde, ECB President: The ECB Cannot Wait to Fully Observe the Secondary Effects of Inflation. At a glance: Lagarde says eurozone inflation has been driven mainly, but not solely, by higher energy prices. She says the ECB must examine early signs before the secondary effects fully emerge. She sees the main solution to France's debt in the country's fiscal policy. Christine Lagarde, president of the central bank

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European Central Bank President Christine Lagarde said inflation was mainly, but not entirely, driven by rising energy prices. According to him, the secondary effects of this increase have not yet been seen; However, the European Central Bank cannot wait for these effects to fully unfold and should monitor early signs.

Secondary effects occur when an initial price shock, such as an increase in the cost of energy, leads to higher wage demands and then increases the prices of goods and services again; As a result, what may be a temporary spike turns into a more permanent inflation. Lagarde said the European Central Bank is monitoring wage expectations in collective bargaining agreements as an early warning sign.

Regarding France's debt, Lagarde said the main solution is, first of all, in the country's own fiscal policy. He also did not consider the 1.1% growth of the Eurozone in 2026 as "very bright", but he did not consider it "bad" and said that he will not run for the presidency of France.

In the market analysis accompanying the report, Lagarde's tone was assessed as marginally contractionary: if the wage agreements signal stronger wage growth, the European Central Bank may react sooner than markets expect. Such a withdrawal could support short-term European and Euro bond yields. In the update of the EURUSD currency pair, the weakening of the dollar is also mentioned.

Energy is still the main way of transmitting inflationary pressure to the economy. Based on this, the jump again in the price of oil or gas following the escalation of tensions in the Persian Gulf can increase the possibility of pre-emptive contractionary policy and make the price of TTF crude oil and gas a direct factor in the formation of expectations about the policy of the European Central Bank.

Lagarde's statements about France's debt are also not considered a sign of special support from the European Central Bank in this assessment; Therefore, the yield gap between French and German bonds is still exposed to the budgetary and political changes in Paris.