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ECB President Christine Lagarde told the European Parliament’s ECON Committee in Brussels on 28 September 2026 that the ECB raised its three key interest rates by 25 basis points this month in response to an energy-driven rise in inflation, which hit 3.2% in August. She also said artificial intelligence is becoming economically significant, with firms set to devote around 10% of investment to AI in 2026, and that its effects on inflation and growth remain uncertain.
European Central Bank President Christine Lagarde told the European Parliament’s Committee on Economic and Monetary Affairs in Brussels on 28 September 2026 that the ECB raised its three key interest rates by 25 basis points earlier this month, as energy prices pushed euro area headline inflation to 3.2% in August. In her hearing speech, she also said artificial intelligence is becoming a material force in the euro area economy — with AI-related borrowing accounting for roughly a quarter of credit growth to firms — while cautioning that its overall macroeconomic effect remains uncertain.
Lagarde described the euro area economy as resilient despite the energy shock, with solid real GDP growth in the second quarter of 2026 that was broad-based across most countries and sectors, and expected to have continued into the third quarter. Manufacturing is being supported by higher government spending on defence and infrastructure, consumer confidence has rebounded from spring lows, and increased AI-related activity is visible in digital services, business investment and exports, she said.
On prices, Lagarde reported that headline inflation rose to 3.2% in August from 2.9% in July, driven mainly by energy inflation of 14.3%, reflecting strong refining margins on liquid fuels and higher energy commodity prices. Inflation excluding energy and food edged down to 2.4%, as a fall in services inflation was only partially offset by higher goods inflation. Nominal wage growth, measured by compensation per employee, slowed to 3.3% in the second quarter from 3.6% in the first, showing — in Lagarde’s words — no material wage response to the energy shock so far.
The September ECB staff projections baseline sees the economy growing by 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028, with headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Lagarde said the outlook remains surrounded by high uncertainty, with upside risks to inflation and downside risks to growth. She added that unemployment stood at 6.4% in July.
Why the ECB Tightened Despite Slower Growth
The 25-basis-point hike matters because it shows the ECB judging that an energy-driven inflation rise, while not yet entrenched, warrants a pre-emptive response. Lagarde framed the decision around the ECB’s “three criteria” — the inflation outlook, the dynamics of underlying inflation, and the transmission of monetary policy — concluding that inflation will run higher in 2027 and 2028 than previously expected but shows no signs yet of becoming embedded, particularly in wages.
She also flagged that long-term interest rates have risen notably since the last meeting, which she said will slow growth and reduce policy pass-through by more than the September projections assumed. Describing the approach as a “middle path” laid out earlier this year, she said the shock is too large for the ECB to look through, but a measured response is appropriate. For households and firms, the decision directly affects borrowing costs across the euro area.
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AI’s Growing Weight in the Euro Area
The hearing’s thematic focus was artificial intelligence, which Lagarde said “goes to the heart of Europe’s economic future.” She cited figures showing firms are set to devote around 10% of total investment to AI in 2026, and that AI-related borrowing already accounts for roughly a quarter of credit growth to firms. She said AI could enhance Europe’s productivity, competitiveness and living standards, but that it is already affecting investment, labour markets and inflation — and therefore matters for monetary policy.
Lagarde stressed that success is not automatic. “We need to seize the benefits, while managing the risks appropriately,” she said, adding that AI’s overall macroeconomic effect is uncertain and will work through several interconnected channels. The hearing forms part of the ECB’s regular dialogue with the European Parliament, a standing accountability mechanism for the central bank.
“When facing energy shocks, the ECB has a very clear strategy: we do not react to energy prices, we react if we see risks of higher energy prices becoming embedded in inflation.”
— Christine Lagarde, President of the European Central Bank
Open Questions on Inflation and AI Effects
Lagarde was explicit that the outlook is surrounded by high uncertainty, with upside risks to inflation and downside risks to growth. Key open questions include whether higher energy prices will eventually feed into wages — which she said has not happened yet — and how much the recent rise in long-term interest rates will slow growth beyond what the September projections assumed.
On AI, she said its overall macroeconomic effect is uncertain and will work through several interconnected channels; the published excerpt of the speech does not detail those channels or quantify the impact on inflation in either direction. It is also not stated how the ECB would adjust policy if energy inflation persists into 2027–28 beyond the projected path.
Watchpoints: Energy Prices and Wage Data
Markets and policymakers will watch upcoming inflation releases to see whether energy inflation continues to lift headline figures, and wage and compensation data for any sign that the energy shock is feeding into pay settlements — the second of the ECB’s three criteria. The ECB’s next monetary policy meeting and the next round of staff projections will test whether the “middle path” holds.
On the structural side, the ECB’s analysis of AI’s effects on investment, labour markets and inflation is likely to deepen, given Lagarde’s statement that AI already matters for monetary policy. The next regular hearing before the Parliament’s ECON Committee will provide a further checkpoint in the ECB’s accountability dialogue.
Key Questions
What did the ECB decide at its September 2026 meeting?
The ECB raised its three key interest rates by 25 basis points, according to Lagarde, in response to an energy-driven rise in inflation while stating there are no signs yet of inflation becoming embedded in wages or broader prices.
Why is euro area inflation rising?
Headline inflation rose to 3.2% in August, driven mainly by energy inflation of 14.3%, which Lagarde attributed to strong refining margins on liquid fuels and higher energy commodity prices. Inflation excluding energy and food edged down to 2.4%.
What is the ECB’s growth forecast?
The September ECB staff projections baseline expects growth of 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028, supported over the medium term by falling energy prices, a robust labour market, and stronger business and housing investment.
Why is the ECB talking about artificial intelligence?
Lagarde said AI is already affecting investment, labour markets and inflation. Firms are set to devote around 10% of total investment to AI in 2026, and AI-related borrowing accounts for roughly a quarter of credit growth to firms — making it relevant to monetary policy.
Could the ECB raise rates again?
Lagarde did not commit to future moves. She said the ECB remains on a “middle path” and will assess energy pass-through to wages, the inflation outlook, and policy transmission — leaving the direction of the next decision open.
Source: primary
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