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ECB President Christine Lagarde told the European Parliament’s economic and monetary affairs committee that the ECB raised its three key interest rates by 25 basis points earlier in September. She said the euro area economy remained resilient, while higher energy prices lifted inflation, and described artificial intelligence as a significant but uncertain force for investment, jobs and monetary policy.
European Central Bank President Christine Lagarde told European Parliament lawmakers on September 28 that the ECB had raised its three key interest rates by 25 basis points earlier this month, as higher energy prices lifted the inflation outlook. At the committee hearing in Brussels, she also said artificial intelligence could affect investment, employment and inflation, making its economic effects relevant to monetary policy.
Lagarde said euro area real GDP grew solidly in the second quarter of 2026 despite an energy shock, with growth broad-based across most countries and sectors. The September ECB staff projections put growth at 0.9% in 2026, 1.4% in 2027 and 1.5% in 2028. Manufacturing, government spending on defence and infrastructure, a recovery in consumer confidence and activity linked to AI were among the factors she cited. Unemployment was 6.4% in July, while employment and labour-force growth were slowing.
Euro area annual headline inflation rose to 3.2% in August from 2.9% in July, according to the figures Lagarde presented. Energy inflation increased to 14.3% from 10.3%, reflecting higher energy commodity prices and refining margins on liquid fuels. Inflation excluding food and energy edged down to 2.4%. Compensation per employee, a measure of nominal wage growth, was 3.3% in the second quarter, down from 3.6% in the first.
The September projections put average headline inflation at 3.0% in 2026, 2.5% in 2027 and 2.1% in 2028. Lagarde said longer-term inflation expectations mostly remained around 2%, while shorter-term expectations were elevated. She said the outlook carried upside risks to inflation and downside risks to growth. On AI, she cited estimates that firms would devote around 10% of total investment to the technology in 2026 and that AI-related borrowing represented roughly a quarter of credit growth to firms.
Rate Policy Amid an Energy Shock
The rate decision reflects the ECB’s effort to contain the risk that a rise in energy costs spreads into broader prices and wages. Lagarde said the bank does not respond mechanically to energy prices; it assesses the inflation outlook, underlying inflation dynamics and how monetary policy is transmitted through borrowing costs and economic growth.
She said inflation was expected to be higher in 2027 and 2028 than the ECB had anticipated a few months earlier, largely because of energy prices, but that there was not yet evidence of those prices feeding into higher wages. At the same time, she said long-term interest rates had risen notably since the previous meeting, which would slow growth and reduce the pass-through of policy more than the September projections had assumed. The rate increase matters to households and firms because borrowing costs affect spending and investment, while the bank weighs those effects against its medium-term 2% inflation target.
AI adds another consideration for policymakers. Lagarde said the technology could reshape production and business models, and its effects could run through investment, labour markets and inflation. The investment and credit figures she cited indicate growing economic exposure, but they do not establish the eventual impact on productivity, prices or employment.
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The ECB’s Three-Part Rate Assessment
Lagarde presented the rate increase as a measured response within the ECB’s stated commitment to stabilise inflation at its 2% medium-term target. She described a three-part assessment: the inflation forecast and risks around it; underlying inflation, including whether energy costs are affecting other prices and wages; and the transmission of monetary policy to borrowing costs and economic growth.
Her account put the current situation between two concerns. Inflation was projected to rise, but she said there were no signs yet that the energy shock had become embedded through wages. Economic activity had proved resilient, while higher long-term interest rates were expected to weigh on growth. The September staff projections provide a baseline rather than a certainty, and Lagarde said the outlook remained highly uncertain.
In introducing AI, Lagarde described the technology as a potential source of change across the economy and said Europe had an opportunity to benefit from it. The speech excerpt supplied for this report sets out the investment and borrowing estimates and introduces AI’s possible macroeconomic effects, but does not include the remainder of her discussion of those channels.
““We do not react to energy prices, we react if we see risks of higher energy prices becoming embedded in inflation.””
— Christine Lagarde, ECB president
Inflation and AI Effects Remain Uncertain
Lagarde said the economic outlook remained highly uncertain, with upside risks to inflation and downside risks to growth. Although the ECB expected higher inflation in 2027 and 2028 than it had forecast a few months earlier, she said there was not yet evidence that higher energy prices were pushing up wages. Whether that changes will matter to future policy decisions.
The scale and timing of AI’s effects on productivity, employment, inflation and living standards were not established in the material available. The investment and credit estimates describe activity in 2026; they do not, by themselves, show the technology’s eventual economic impact. The supplied speech excerpt ends as Lagarde begins explaining the channels through which AI may affect the economy, so further details from that part of her remarks cannot be confirmed here.
ECB to Reassess Incoming Evidence
Lagarde said the ECB would continue to judge inflation risks through its three-part assessment as new information arrives. The September projections set out the bank’s baseline for growth and inflation through 2028, but the speech did not specify a date for another rate decision or signal what the ECB would do at its next meeting.
The next policy assessment will depend on how energy prices, wages, underlying inflation, growth and financing conditions develop. For AI, the speech identifies investment, borrowing, labour markets and prices as relevant areas to watch; the excerpt does not set out a specific next step or timetable for ECB analysis.
Key Questions
What did Lagarde tell the European Parliament committee?
She discussed the euro area economic and inflation outlook, explained the ECB’s recent 25-basis-point rate increase and outlined why AI could matter for the economy and monetary policy.
Why did the ECB raise interest rates?
Lagarde said the decision was intended to keep inflation on track to stabilise at the ECB’s 2% medium-term target. The bank considered the inflation outlook, underlying inflation and how policy was affecting borrowing costs and growth.
What happened to euro area inflation in August?
Headline inflation rose to 3.2% from 2.9% in July. Energy inflation increased, while inflation excluding energy and food edged down to 2.4%, according to the figures Lagarde presented.
What did Lagarde say about AI?
She said AI could reshape production and business models and affect investment, labour markets and inflation. She cited estimates that firms would devote around 10% of total investment to AI in 2026 and AI-related borrowing accounted for roughly a quarter of credit growth to firms.
Did Lagarde signal the ECB’s next rate move?
The supplied speech does not specify the next rate decision or provide a timetable. Lagarde said the ECB would assess the inflation outlook, underlying price and wage dynamics, and policy transmission.
Source: primary
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