President Lagarde presents the latest monetary policy decisions – 10 September 2026

0:00You're listening to Euro Matters, the European Central Bank podcast. It is Thursday, 10 September 2026. And today we're in Berlin, where our governing council has just decided what's needed for stable prices in the Euro area. Listen as President Christine Lagarde explains those decisions. Here is the monetary policy statement. The governing council today decided to raise the three key ECB interest rates by 25 basis points. The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period. Today's decision underscores our commitment to setting monetary policy to ensure that inflation stabilizes at our 2% target in the medium term. The baseline of the new ECB staff projections sees headline inflation averaging 3% in 26,

1:032.5% in 27, and 2.1% in 28. For inflation, excluding energy and food, the baseline forces 2.5% in 26, 2.6% in 27, and 2.3% in 2028. Compared with June, the baseline projection for inflation in 26 is unchanged. What has been revised up for 27 and 28. The baseline projection for economic growth is 0.9% for 26, 1.4% for 27, and 1.5% for 28. And this is an upward revision for both 26 and 27, mainly reflecting the greater than expected resilience of the Euro area economy.

2:04The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth. In relation to the energy shock, the updated scenarios put together by staff illustrate the broad range of outcomes for how growth and inflation would evolve under different assumptions about its intensity and duration, as well as its indirect and second-round effects. With today's decision, we remain well positioned to navigate the uncertainty caused by the conflict. We will follow a data dependent and meeting by meeting approach to determining the appropriate monetary policy stance. In particular, our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it in light of the incoming economic and financial data,

3:07as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not pre-committing to a particular rate path. The decisions taken today are set out in a press release available on our website. And I will now outline in more detail how we see the economy and inflation developing and will then explain our assessment of financial and monetary conditions. The economy proved resilient in the second quarter, despite headwinds from the energy shock. Growth was broad-based across countries and sectors. This pattern is likely to have continued into the third quarter. Manufacturing continues to perform solidly, as governments spend more on defense and infrastructure. Consumer confidence, as rebounded from low levels, helping services recover from the initial energy shock.

4:16Increased AI-related activity is visible in digital services, business investment and exports. The labour market has remained robust, with the unemployment rate unchanged in July at 6.4%. Growth in employment and the labour force continues to slow, while productivity has gradually picked up. Looking ahead, the near-term growth outlook has improved compared with the last round of staff projections, reflecting in particular the resilience of private consumption and public spending. Over the medium-term, consumption should be supported by gradually falling energy prices and a strong labour market. Growth will increasingly be bolstered by business and housing investment.

5:21Export growth should benefit from rising foreign demand, but is being held back by competitiveness challenges and uncertainty about global trade policies. Higher potential growth requires structural reforms and has to be underpinned by sound public finances. Simplifying and harmonising rules across the EU's single market, accelerating the energy transition and completing the savings and investments union are key building blocks. As the process for agreeing on the legal framework for the digital euro moves into its final stage, we reiterate the importance of reaching agreement on the single currency package as quickly as possible. Physical responses to the energy shock should be temporary, targeted and tailored.

6:26Looking now at inflation, inflation increased to 3.3% in August from 2.9% in July. Energy price inflation rose to 14.3% after 10.3% in July. This increases likely to reflect in particular a strong contribution from refining margins on liquid fuels, as well as higher energy commodity prices. Food price inflation remained unchanged at 1.2%. Inflation excluding energy and food edged down to 2.4% in July, with goods inflation increasing from 0.9% to 1.2% and services inflation falling from 3.3% to 3.0%.

7:32Most measures of underlying inflation were broadly stable in July. Wages do not show a material response to the energy shock at this stage. Compensation per employee grew at an annual rate of 3.3% in the second quarter, downed from 3.5% in the first quarter. Rising labor productivity has also helped contain growth in unit labor costs, which slowed to 2.6% from 3.5% in the first quarter. At the same time, growth in unit profits rose from 0.3% to 2.2%. Looking ahead, the ECB's wage tracker points to a modest uptick to 2.7% in negotiated wage growth in the first half of 2027. Inflation expectations over shorter horizons remain at elevated levels.

8:34But most measures of longer term inflation expectations stand at around 2% supporting the stabilization of inflation around target in the medium term. The conflict in the Middle East and recent developments in Russia's unjustified war against Ukraine have pushed the path of energy prices up further. This is likely to keep headline inflation well above target into the first half of 2027. Thereafter, energy inflation should decline and turn negative up to mid-2028, bringing headline inflation down. Higher energy prices are expected to feed through gradually to core and food price inflation. The improved economic outlook should also contribute to slightly higher core inflation, which is expected to keep rising until early 2027 and stay elevated for the rest of the year before moderating in 2028.

9:47Overall, headline inflation is expected to return to around target towards the end of 2027, supported by the effects of higher interest rates. We will continue to monitor closely the size and persistence of the energy price increase and how it feeds through to price and wage setting, inflation expectations and overall economic dynamics. Turning now to the risk assessment. The risk to the growth outlook are to the downside. This is due in particular to the Middle East conflict and developments in Russia's unjustified war against Ukraine. Renewed disruption of energy supplies could cause energy prices to rise further and for longer than currently expected.

10:47This would weigh on real incomes, spending and investment. A worsening of global financial market sentiment or spillovers in global bond markets could tighten credit conditions and thereby dampen demand. A resurgence of trade tensions between major economies could also further disrupt supply chains, reduce exports and weaken consumption and investment. By contrast, growth could turn out to be higher if the economy and energy markets were to adapt more quickly than expected to the disruption caused by the ongoing conflicts or if these were resolved sustainably. Moreover, the adoption of new technologies by Euro-area firms and spending on defense and infrastructure as well as reforms to enhance productivity and complete the EU's single market may drive up growth by more than expected.

11:51The risks to the inflation outlook are to the upside. This is due in particular to the Middle East conflict and developments in Russia's unjustified war against Ukraine. The energy shock could intensify further and its effect on other prices and wages could be stronger than currently expected. GAS prices, in particular, could increase in the event of further supply disruptions or an unusually-called winter coinciding with low storage levels. The longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-run effects. Renewed trade tensions could give rise to more fragmented global supply chains, curtail the supply of critical raw materials and worsen capacity constraints in the Euro-area economy.

12:55Extreme weather events potentially reinforced by intensifying elineal conditions and the unfolding climate and nature crisis, more broadly, could drive up food prices by more than expected. By contrast, inflation could turn out to be lower if ongoing geopolitical conflicts were resolved sustainably or if indirect or second-run effects from the recent energy price shock proved less pronounced than anticipated. More volatile and risk-averse financial markets could weigh on demand and thereby lower inflation as well. Market interest rates have increased since our previous meeting, reflecting similar moves in global markets. Following our interest rate increase in June, bank lending rates for firms have risen to stand at 3.8% in June and July from 3.6% in May.

14:09The cost of market-based corporate debt to that 4% in July, which was similar to previous months and well above its level before the conflict in the Middle East. The annual growth rate of bank lending to firms, which usually responds to changes in monetary policy with the longer delay, increased further to 4.4% in July from 4% in May and June. The annual growth rate of corporate bond issuance was 3.4% after 3.6% in June and 3.3% in May. Mortgage rates were unchanged in June and July at 3.5%, while mortgage lending growth softened to 3% in July from 3.1% in May and June. In conclusion, the governing council today decided to raise the 3 key ECB interest rates by 25 basis points.

15:16We are committed to setting monetary policy to ensure that inflation stabilizes at our 2% target in the medium term. We will follow a data dependence and meeting by meeting approach to determining the appropriate monetary policy stance. Our interest rate decisions will be based on our assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission. We are not precommitting to a particular rate path. In any case, we stand ready to adjust all of our instruments within our mandate to ensure that inflation stabilizes sustainably at our medium term target and to preserve the smooth functioning of monetary policy transmission.

16:17Out was President Christine Lagarde presenting the ECB's monetary policy decisions in today's press conference. To hear more from Euro matters, make sure to subscribe. Every 1st and 3rd Tuesday of the month, we unpack the stories, ideas and decisions shaping Europe's economy and bring you fresh perspectives from the people at the heart of it all. The next podcast on the monetary policy statement will be published on 29 October 2026. In the spirit of Europe, I would like to end in German and say this but until next time, thanks for listening.