ECB Raises 2027 Inflation Forecast to 2.5%

ECB President Christine Lagarde said the bank will take a measured, data-dependent approach to inflation, which has risen above 3% largely because of the energy shock linked to the US-Iran conflict. September projections put inflation at 2.5% in 2027 and 2.1% in 2028, higher than forecast in June, while the ECB says it has not yet seen energy costs spreading materially into wages or becoming embedded in underlying inflation. The bank views the shock as too large to ignore but says a more forceful response would depend on clearer signs of persistent price pressures. Lagarde also noted that rising long-term bond yields are already tightening financial conditions and could restrain growth and limit the pass-through of energy costs. She described the euro-zone economy as broadly resilient, with manufacturing and employment holding up, even as uncertainty and inflation risks remain elevated.