ECB’s Lagarde: Inflation to Stay Near 2%; Risks to Outlook Narrower Than Previously

3 December 2025

By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde on Wednesday said that inflation should remain close to 2% in the coming months and that risks to the outlook had narrowed.

Addressing the European Parliament’s Committee on Economic and Monetary Affairs in Brussels, Lagarde said the December 18 Eurosystem projections would “shed further light on the outlook for growth and inflation.”

Lagarde characterized recent euro area developments as supported by domestic demand and services activity. Manufacturing and exports continued to face pressure from higher tariffs, uncertainty and a stronger euro, she said.

She said growth should be helped by household spending, a resilient labor market and infrastructure and defense investment. Still, the global environment would “remain a headwind,” and despite more balanced risks, “the outlook remains uncertain.”

Inflation rose to 2.2% in November on higher services and energy prices, she noted, with core inflation steady at 2.4%.

Indicators of underlying inflation “remain consistent with our 2% medium-term target,” she said. Wage growth has moderated from its earlier peak, she said.

“We expect inflation to stay around our 2% target in the coming months,” Lagarde said. “Risks to the outlook continue to be two-sided – although more narrow than they were – while uncertainty remains higher than usual owing to volatile global trade policies, but has clearly abated since the conclusion of the agreement between the US and Europe in relation to tariffs.”

Lagarde reiterated that the ECB is “not pre-committing to a particular rate path.” Decisions would continue to reflect the inflation outlook, underlying dynamics and the strength of transmission, she said.

She also outlined key elements of the ECB’s monetary policy toolkit, including Outright Monetary Transactions, the Transmission Protection Instrument and the pandemic emergency purchase program.

OMTs address “severe distortions” in sovereign bond markets linked to unfounded doubts about the euro’s irreversibility, she said. They require strict conditionality, she said.

The TPI may be activated to counter unwarranted market dynamics in countries experiencing a deterioration in financing conditions, she said. Eligibility depends on a range of criteria, she observed.

Lagarde said the PEPP had been designed with a dual function during the pandemic, supporting both market functioning and the monetary policy stance. She noted that reinvestments ended in December 2024.

These instruments show that the ECB’s toolkit is “adaptable to unprecedented challenges while remaining clearly within the scope of our monetary policy competence,” she said.

Lagarde welcomed forthcoming European Commission proposals on capital market integration and supervision. She called them “key for overcoming fragmentation” and strengthening Europe’s economic resilience.