Lagarde Says Inflation Expectations Remain Anchored Despite War-Driven Energy Shock

Christine Lagarde said long-term inflation expectations in the eurozone remain broadly aligned with the European Central Bank’s 2% target despite mounting economic pressures stemming from the escalating Iran war and the resulting energy crisis.

Speaking Friday in Nicosia after a meeting of eurozone finance ministers, the ECB president acknowledged that surging energy prices are pushing inflation higher and weighing on economic activity across the region, but stressed that medium- and long-term inflation expectations remain relatively stable.

“Although the energy crisis is driving inflation upward and negatively affecting the economy, inflation expectations remain largely well anchored,” Lagarde said.

Her remarks come as investors increasingly anticipate another interest-rate increase at the ECB’s next policy meeting on June 11, amid renewed concerns that geopolitical tensions in the Middle East could trigger prolonged inflationary pressures across Europe.

Lagarde cautioned that the economic consequences of the conflict will depend heavily on the scale and duration of the energy-price shock, as well as the broader indirect effects on eurozone economies.

“The impact of the war on inflation and economic activity over the medium term will depend on the severity of energy price increases, how long they persist, and the magnitude of secondary effects,” she said.

The comments underscore the growing challenge facing the European Central Bank as it attempts to contain imported inflation without further weakening an already slowing economy.

Recent business activity data has pointed to a sharper-than-expected contraction across parts of the eurozone, intensifying fears that additional monetary tightening could deepen the region’s economic slowdown.

Despite expectations of a June rate hike, Lagarde declined to provide direct guidance on the ECB’s next move, reiterating that policymakers would continue to follow a strictly data-dependent approach.

“We will continue taking decisions meeting by meeting, based on incoming data, to determine the appropriate monetary-policy stance needed to achieve our 2% target over the medium term,” she said.

Lagarde also reaffirmed the ECB’s “strong commitment” to maintaining price stability amid heightened geopolitical uncertainty and volatile energy markets.