Christine Lagarde: ‘New bilateral and geopolitical shocks could amplify inflation in Europe’

The ECB President highlights the risk of increased economic volatility caused by trade fragmentation and global tensions. Commitment to maintaining price stability remains crucial

Christine Lagarde, President of the European Central Bank (ECB), warned of growing economic uncertainty and the effects that new bilateral shocks could have on inflation in Europe. Speaking at a conference in Frankfurt, Lagarde explained how trade tensions, defence spending and climate change are becoming forces capable of amplifying inflation in the eurozone.

Fragmented trade and rising inflation

Lagarde pointed out that fragmented trade and rising defence spending could cause inflationary pressures due to the limited capacity of the sector. However, she also recognised that US tariffs could reduce demand for European exports, which could reduce inflation by redirecting excess capacity from China to Europe.

Increased uncertainty and economic volatility

The eurozone economy, which is highly integrated into global supply chains, could be affected by larger and more disruptive price changes, according to Lagarde. The trade policy uncertainty index has reached historic levels, six times higher than the average since 2021, while geopolitical risks have reached peaks not seen since the Cold War.

The ECB remains committed to price stability

Against this backdrop, Lagarde reiterated that the ECB will remain nimble in responding to new shocks, maintaining its commitment to price stability and achieving 2 per cent inflation over the medium term. Central bankers, she added, will have to adapt their strategies and instruments according to changing circumstances, while maintaining a prudent and defined approach to avoid rash reactions.

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