By Marta Vilar – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde said on Thursday that the ECB is “well positioned” to deal with the latest energy price shock and will remain “agile” in ensuring inflation returns to its 2% medium-term target.

Speaking at the press conference following the Governing Council meeting, Lagarde described the discussion as “calm,” “determined” and “laser-focused” on incoming data and staff projections. She added that the decision to leave interest rates unchanged was unanimous, with “no range of views” expressed.

“I'm not saying that we are in a good place. We are well positioned … and well equipped to deal with the development of a major shock that is unfolding and we will continue doing that,” she said, adding that she would not be able to provide a timeline for future steps.

Lagarde highlighted a broad set of indicators the ECB would closely monitor, including commodity prices, supply bottlenecks, firms’ pricing expectations, demand indicators such as PMIs and consumer confidence, surveys and wage trackers.

“All of that which is unfolding at the moment, which is a severe shock, will depend on the duration, the intensity and the propagation,” she said. “And by propagation, I mean the indirect effects and the second-round effects.”

Later in the press conference, she added that there already was “a bit of propagation, actually,” noting that part of this assessment was “judgmental” and referred to indirect and second-round effects.

Lagarde said the ECB had developed two alternative scenarios. In the adverse scenario, oil and gas prices rose well above the levels incorporated in the baseline before easing back to 4 March levels by the end of the projection horizon, while in the severe scenario, energy prices remain elevated for longer, returning to those levels only beyond the horizon, she said.

“And obviously, given the hypotheses that are taken, the impact on inflation, on growth are different, and are higher on inflation and lower on growth,” she said.

The ECB would tackle this situation “from a good position” and was “well positioned” to apply its strategy and “be agile” and “do what is necessary,” she said, adding that the central bank was “determined” to ensure that inflation would stabilize at 2%.

She also noted that the ECB has learned from the 2022 inflation shock, having refined its models, adjusted its strategy, and become more attentive to risks around the outlook.

Comparing the current situation to 2022, Lagarde pointed to lower starting inflation—1.9% now versus around 6% then—as well as a labor market that was now “solid” rather than “hot.”

She also highlighted that consumers now had a “fresher memory” of energy price shocks and might react differently, while the earlier episode was compounded by stronger demand-side pressures.

Finally, she noted that the scenario analysis assumed no changes in monetary policy, whereas the baseline incorporated market rate expectations as of 11 March.