Economic Buzz: ECB sees no need for forceful response to inflation

ECB President Christine Lagarde noted that the euro area economy was gaining some traction when the war in the Middle East broke out. Real GDP rose by 0.3%, quarter on quarter, in the first quarter of 2026, once adjusted for exceptional volatility in Ireland. Due to energy spike, inflation expectations over shorter horizons have risen well above the levels seen before the outbreak of the war in the Middle East. But the public does not currently expect high inflation to be lasting: most measures of longer-term inflation expectations stand at around 2%, supporting the stabilisation of inflation around target in the medium term.

The ECB President stated that we are therefore confident that, with appropriate monetary policy action, inflation will return to target. The June Eurosystem staff projections foresee headline inflation at 3.0% in 2026, 2.3% in 2027 and 2.0% in 2028.

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