By David Barwick – FRANKFURT (Econostream) – European Central Bank President Christine Lagarde said in an interview published Saturday that it would take significant changes to alter the policy course she expected. She left open whether the ECB would raise rates in December and warned that prolonged high inflation would increase the risk to its medium-term target.

Asked by Japan’s Yomiuri Shimbun whether the ECB should raise rates before second-round effects became apparent, Lagarde said the Governing Council would continue to decide meeting by meeting on the basis of incoming data.

“So, I cannot tell you today that we will for sure do this in December,” she said in the interview, conducted on Wednesday. “What I know is that, on the basis of the information we have today, it would take significant changes for the direction of travel to be different from what I expect. That’s what I said during my press conference.”

Lagarde said October’s 4% headline inflation rate was higher than the ECB had expected a few months earlier, with energy inflation climbing to 20.8% from 18.9% in September. She described underlying indicators as “stable,” with core inflation unchanged at 2.5% and services inflation edging up to 3.3%, within its range of the previous four months. She said the detailed breakdown would help establish whether the increase in services inflation was concentrated in energy-intensive sectors such as transport or pointed to a broader pass-through.

“We are currently not seeing signs of second-round effects beyond what we have incorporated in our projections,” Lagarde said. “We’re watching carefully the forward-looking indicators – multi-year wage agreements, companies’ wage expectations – and we don’t see evidence of a shift yet.”

Lagarde declined to say whether the ECB would revise its inflation projections upward. She said energy futures curves and long-term interest rates were higher than at the time of the September projections, although oil prices had come down more recently. The forecast exercise would assess how those forces affected medium-term inflation, she said.

Looking back at 2021–22, Lagarde said major central banks had decided to look through a supply shock they expected to be temporary. “That was, in hindsight, misguided because the situation was much more complicated,” she said. As economies reopened, consumers were spending accumulated savings, creating a simultaneous demand shock that policymakers had missed, she said.

Asked about the risk of France’s fiscal problems spreading across the euro area, Lagarde said long-term yields had risen globally, citing higher inflation, increased sovereign issuance and competition for funding from the artificial intelligence sector. She said higher rates made compliance with EU fiscal rules more pressing for heavily indebted member states.

“We have a big toolbox, and no tool is ruled out in advance,” Lagarde said when asked whether the ECB would use its Transmission Protection Instrument if necessary. “They all correspond to certain criteria and conditions, and require a judgement call by the Governing Council. Whatever is appropriate and called for will be used, under the conditions and with the criteria that would apply.”