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ECB President Christine Lagarde told the European Parliament’s Economic and Monetary Affairs Committee on Sept. 28 that the euro area economy had shown resilience but faced elevated inflation uncertainty. She explained the ECB’s recent 25-basis-point rate rise and discussed how artificial intelligence could affect productivity, jobs, investment and inflation.
European Central Bank President Christine Lagarde told the European Parliament’s Committee on Economic and Monetary Affairs on September 28 that the euro area remained resilient but faced higher inflation and uncertain growth prospects. She also explained the ECB’s decision earlier in September to raise its three key interest rates by 25 basis points and discussed how artificial intelligence could reshape investment, jobs and inflation.
Lagarde said euro area real gross domestic product grew solidly in the second quarter of 2026, with gains across most countries and sectors, and that this pattern was expected to continue in the third quarter. Manufacturing had held up, supported by government spending on defence and infrastructure, while consumer confidence recovered from spring lows. She also pointed to AI-related activity in digital services, business investment and exports. The ECB staff baseline projection puts growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028.
Inflation moved higher: headline inflation reached 3.2% in August, up from 2.9% in July. Lagarde attributed the increase in energy inflation, which rose to 14.3% from 10.3%, particularly to liquid-fuel refining margins and higher energy commodity prices. Food inflation eased to 1.1%, while inflation excluding food and energy edged down to 2.4%. Nominal wage growth also slowed: compensation per employee was 3.3% in the second quarter, down from 3.6% in the first.
The ECB raised its key rates by 25 basis points earlier in September, Lagarde said, to keep inflation on track to stabilise at the bank’s 2% medium-term target. She described the decision as a measured response to the energy shock. The ECB, she said, looks for signs that higher energy costs are spreading into underlying prices and wages, alongside its inflation outlook and the effect of policy on borrowing costs and growth. She said the bank saw higher inflation ahead but had not yet seen evidence that the energy shock was becoming embedded in wages.
Rate Policy Meets an Energy Shock
The hearing set out how the ECB is balancing an energy-driven rise in inflation against an economy that has so far continued to grow. The rate increase signals that policymakers consider the shock too large to ignore, while Lagarde’s remarks indicate that the bank is watching for spillovers into wages and other prices before judging whether inflation has become persistent. That distinction matters to households and businesses because rates influence borrowing costs, spending and investment.
Lagarde also linked AI to monetary policy because its effects could reach productivity, labour markets, investment and prices. The speech said firms were expected to devote around 10% of total investment to AI in 2026, and AI-related borrowing already represented roughly a quarter of credit growth to firms. Those figures describe investment and credit activity; they do not establish how much productivity or economic growth AI will ultimately generate.
Growth, Inflation and the ECB
The hearing was part of the ECB president’s regular dialogue with the European Parliament committee responsible for economic and monetary affairs. Lagarde’s remarks covered both the September ECB staff projections and the bank’s policy decision earlier that month, placing the AI discussion alongside immediate questions about inflation and growth.
In the September baseline, headline inflation is projected to average 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Inflation excluding energy and food is projected at 2.5%, 2.6% and 2.3% across those years. Lagarde said most measures of longer-term inflation expectations remained around 2%, even as shorter-term expectations stayed elevated. Unemployment was 6.4% in July, while employment and labour-force growth were slowing.
“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
AI’s Economic Effects Remain Uncertain
Lagarde said the overall macroeconomic effect of AI was uncertain. The speech identified possible effects on production, business models and the wider economy, but the supplied remarks do not establish the scale or timing of those changes, or how they will affect productivity, employment, prices and growth. The figures on planned investment and AI-related borrowing do not, by themselves, show the eventual returns from that spending.
The near-term inflation outlook is also uncertain. The ECB’s baseline points to inflation above its 2% target in 2026 and 2027, with risks tilted toward higher inflation and weaker growth. Lagarde said the bank had not yet seen evidence that energy costs were feeding into higher wages. Whether that changes will affect the outlook and future policy decisions.
Data Will Guide Future Rate Decisions
The ECB will continue assessing the inflation outlook, underlying price and wage dynamics, and how monetary policy is affecting borrowing costs and growth. Lagarde did not announce a specific path for future interest rates in the supplied remarks; the speech describes decisions as dependent on incoming evidence.
Further data on energy prices, wages, growth and AI-related investment will help clarify whether current pressures persist and how AI activity develops. The speech does not set out a separate timetable or forecast for AI’s effects.
Key Questions
What did Lagarde tell the European Parliament committee?
She discussed the euro area outlook, the ECB’s recent 25-basis-point rate rise and possible effects of AI on the economy and inflation.
Why did the ECB raise interest rates?
Lagarde said the bank sought to keep inflation on track to stabilise at its 2% medium-term target as energy costs pushed up its inflation outlook. She described the increase as a measured response.
Did Lagarde say AI will raise productivity?
She said AI has the potential to enhance productivity, competitiveness and living standards, while stressing that its overall macroeconomic effect remains uncertain.
What was euro area inflation in August 2026?
Headline inflation was 3.2% in August, up from 2.9% in July. The speech attributed much of the increase to energy inflation, which reached 14.3%.
Source: primary
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