By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde said Monday that the uncertainty surrounding the Middle East energy shock argued for waiting for more information before drawing firm monetary-policy conclusions, while reiterating that the ECB stood ready to act as needed.

In a speech in Berlin, Lagarde said the central bank was confronting a major supply shock whose effects would depend above all on how long the disruption lasted and how far higher energy prices passed through into broader inflation.

“This double uncertainty about the duration of the shock and the breadth of pass-through argues for gathering more information before drawing firm conclusions for our monetary policy,” she said.

Lagarde said the economic picture remained “deeply uncertain” and warned that there was “no easy path back” to where the Eurozone had been before the conflict erupted.

While the supply disruption was “enormous,” she said, energy prices had not yet risen enough to push the Eurozone squarely into the ECB’s adverse scenario. At the same time, she said, the range of possible outcomes remained unusually wide.

“We are watching what comes next,” she said.

Lagarde also stressed that the inflation effects of the shock would depend on the economic environment. She said recent surveys suggested firms’ selling-price expectations had risen and households were paying more attention to inflation, but she also noted that higher energy prices and weaker sentiment were likely to weigh on demand and could limit the extent of price and wage increases.

She said fiscal policy would also be critical in shaping the inflation outcome, warning governments against broad support measures that blur the price signal or sustain demand too strongly.

“The lesson of 2022 is clear: support that is temporary, targeted and preserves the price signal can protect the most vulnerable without making inflation worse or public finances less stable,” she said.

Lagarde ended by reaffirming the ECB’s commitment to its price-stability mandate and by keeping policy options open.

“We are committed to our price stability mandate,” she said. “We will ensure that inflation returns to 2% over the medium term. And we will act as the situation demands.”