Finance
Euro zone facing increased inflation volatility, Lagarde says
Published by Global Banking & Finance Review®
Posted on June 30, 2025
2 min readLast updated: January 23, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on June 30, 2025
2 min readLast updated: January 23, 2026
Euro zone inflation is becoming more volatile, prompting ECB to consider forceful actions to maintain price stability, says Christine Lagarde.
SINTRA, Portugal (Reuters) -Uncertainty is bound to remain a key feature of the global economy, likely making inflation more volatile and requiring the ECB to act more forcefully to keep prices around its target, ECB President Christine Lagarde said on Monday.
The ECB unveiled an updated strategy on Monday and concluded that major deviations from its target in either direction would require "appropriately forceful or persistent" policy action to ensure price growth comes back to 2%.
Explaining this conclusion, Lagarde argued that the global environment had changed fundamentally in the post-pandemic years, as firms changed prices more quickly in this new period of uncertainty and supply shocks.
"The world ahead is more uncertain – and that uncertainty is likely to make inflation more volatile," Lagarde told the ECB Forum on Central Banking in Sintra, Portugal.
Inflation in the euro zone is now around 2%, right on the bank's target, after a decade of first undershooting this figure despite massive stimulus, then overshooting it.
While the ECB sees inflation staying around these levels over the next several years, Lagarde admitted there were risks as corporate pricing behaviour has changed.
"Firms tend to react more quickly to shocks – especially supply ones – in order to protect against potential future losses," Lagarde said in a speech. "They are more likely to adopt more flexible pricing strategies, which means prices may respond not just to major shocks, but also to smaller frictions and local disruptions."
Another problem was that pricing adjustment may not be linear, meaning that inflation could quickly accelerate or slow.
The way to tackle such risks, Lagarde argued, was by acting forcefully early, including tightening policy quickly to prevent a feedback loop between prices and wages.
Similarly, early action against too-low inflation would minimise the time the ECB would have to spend at ultra-low interest rates.
(Reporting by Balazs Koranyi; Editing by Alex Richardson)
Lagarde stated that inflation in the euro zone is currently around 2%, which is right on the ECB's target. However, she acknowledged that there are risks due to changing corporate pricing behavior.
Lagarde explained that the global environment has fundamentally changed, with firms adjusting prices more quickly in response to uncertainty and shocks, particularly supply-related ones.
The ECB plans to act more forcefully to keep inflation around its target, requiring 'appropriately forceful or persistent' policy actions to address major deviations.
Lagarde noted that pricing adjustments may not be linear, which means inflation could accelerate or slow down quickly, necessitating early and decisive action from the ECB.
Lagarde indicated that early action against too-low inflation would minimize the time the ECB would need to maintain ultra-low interest rates, thereby stabilizing the economy.
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