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ECB President Christine Lagarde told the European Parliament’s ECON Committee on 28 September 2026 that the ECB raised key rates by 25 basis points in response to an energy-driven rise in inflation. She said firms will devote around 10% of investment to AI in 2026, and AI already accounts for roughly a quarter of credit growth to firms.
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, arguing that while inflation will run higher than previously expected, there are no signs yet that energy price increases are becoming embedded in wages or underlying inflation. Lagarde also warned that artificial intelligence is already reshaping euro area investment, labour markets and inflation dynamics, making it a matter for monetary policy.
Turning to the economy, Lagarde said the euro area proved resilient despite the energy shock, with solid real GDP growth in the second quarter of 2026 that was broad-based across countries and sectors, and a similar pattern expected for the third quarter. Manufacturing is being supported by higher government spending on defence and infrastructure, consumer confidence has rebounded from spring lows, and AI-related activity is visible in digital services, business investment and exports. Unemployment stood at 6.4% in July, although both employment and labour force growth are slowing.
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 refining margins on liquid fuels and higher energy commodity prices. Inflation excluding energy and food edged down to 2.4%. Nominal wage growth, measured by compensation per employee, slowed to 3.3% in the second quarter from 3.6% in the first, which Lagarde said showed no material wage response to the energy shock so far. The September ECB staff projections, presented as the baseline, see the economy growing 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.
Explaining the rate decision, Lagarde said the ECB applies a “three criteria” framework: the inflation outlook, the dynamics of underlying inflation, and the transmission of monetary policy. She said the ECB does not react to energy prices themselves, but to risks of those prices becoming embedded in inflation. Noting that long-term interest rates have risen notably since the last meeting, which she said would slow growth and reduce pass-through by more than projected, Lagarde characterised the ECB as remaining on a “middle path”: “the shock is too large to look through, we view a measured response as appropriate to keep inflation in check.”
On artificial intelligence, Lagarde said it is a “transformative force” that could enhance Europe’s productivity, competitiveness and living standards, but that its overall macroeconomic effect is uncertain. 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 will affect investment, labour markets and inflation, and that “success is not automatic” for Europe in harnessing the technology.
Why the Rate Path and AI Matter for the Euro Area
The hearing matters because it sets out the ECB’s reasoning at a moment when inflation is drifting further from the 2% target while growth remains fragile. Lagarde’s argument that energy price effects are not yet feeding into wages underpins the ECB’s decision to respond with a single measured hike rather than a more aggressive cycle — a framing markets and households will scrutinise in coming months.
The AI discussion signals that the ECB now treats artificial intelligence as a macroeconomic variable, not a niche topic. With roughly a quarter of corporate credit growth already tied to AI-related borrowing, according to the figures Lagarde cited, shifts in AI investment could influence demand, productivity and ultimately the inflation trajectory the ECB is trying to manage.
The ECB’s Energy Shock Playbook So Far
The euro area has been absorbing a renewed energy shock, with energy inflation jumping from 10.3% in July to 14.3% in August. Lagarde said the ECB’s strategy for such shocks is explicit: it looks through energy prices themselves and acts only when second-round effects — notably on wages and underlying inflation — appear.
The “middle path” language refers to guidance Lagarde laid out earlier in 2026, positioning policy between looking through the shock entirely and tightening forcefully. She noted that longer-term inflation expectations stand at around 2%, supporting the projection that inflation stabilises near target in the medium term, while shorter-horizon expectations remain elevated. The overall outlook, she cautioned, is surrounded by high uncertainty, with upside risks to inflation and downside risks to growth.
“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 acknowledged that the outlook carries high uncertainty, with upside risks to inflation and downside risks to growth. Whether energy prices ultimately push through to wages remains unresolved; she said only that no material response is visible so far.
On AI, she stated plainly that its overall macroeconomic effect is uncertain, working through several interconnected channels. The speech, as released, does not detail those channels fully, and the ECB has not quantified AI’s net impact on productivity or inflation. The magnitude of the growth slowdown from rising long-term interest rates, flagged as exceeding September projections, is also not yet quantified.
Watch Points: Wages, Energy and the Next ECB Meeting
The ECB’s next monetary policy meeting will test whether the “middle path” holds. Key indicators to watch include quarterly wage data for signs of second-round effects from the energy shock, monthly inflation prints against the September staff projections, and the pace at which higher long-term interest rates dampen growth.
On the AI front, the ECB’s analytical work on the technology’s impact on productivity, labour markets and inflation is likely to feature in future projections and hearings. Lagarde indicated the regular dialogue with the Parliament’s ECON Committee will continue.
Key Questions
What did the ECB decide at its September 2026 meeting?
The ECB raised its three key interest rates by 25 basis points, citing a higher inflation outlook driven mainly by energy prices, while judging that inflation is not yet becoming embedded in wages or underlying price dynamics.
Why didn’t the ECB raise rates more aggressively?
According to Lagarde, the ECB follows a ‘middle path’: the energy shock is too large to look through, but there is no evidence of second-round effects on wages, and rising long-term interest rates are already expected to slow growth by more than projected in September.
What is the ECB’s inflation forecast?
The September 2026 ECB staff projections’ baseline sees headline inflation averaging 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028, with inflation excluding energy and food at 2.5%, 2.6% and 2.3% respectively.
How large is AI’s footprint in the euro area economy?
Per the figures Lagarde cited, firms are set to devote around 10% of total investment to AI in 2026, and AI-related borrowing already accounts for roughly a quarter of credit growth to firms.
Does the ECB think AI will raise or lower inflation?
The ECB did not give a definitive direction. Lagarde called AI a transformative force whose overall macroeconomic effect is uncertain, working through multiple channels affecting investment, labour markets and inflation.
Source: primary
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