Home · Business · Sep 28 archive
ECB Sticks to 'Middle Path' Amid Rising Inflation
Confirmed
In Short: ECB President Christine Lagarde reiterated on Monday that the central bank remains on a 'middle path' in its monetary policy approach, despite the worsening inflation outlook.
Lagarde said the ECB's current stance is appropriate given that wages have not yet shown a significant response to the energy shock.
She noted that long-term interest rates have risen since the last meeting, which should help slow growth and reduce inflation pass-through.
Headline inflation rose to 3.2% in August, driven largely by energy prices, while core inflation excluding energy and food edged down to 2.4%.
Lagarde warned that inflation would be higher than previously expected in 2027 and 2028, but added that there was no evidence yet of price pressures becoming embedded.
Both the ECB and the Reserve Bank of Australia (RBA) raised interest rates by 25 basis points last week, signaling that future decisions will depend on incoming economic data.
The outlook for inflation remains uncertain, with risks tilted upward for inflation and downward for growth.
Lagarde emphasized that the ECB's measured response is aimed at keeping inflation in check without overreacting to energy price volatility.
She noted that the September projections still see headline inflation averaging 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028.
Lagarde's comments reflect the ECB's commitment to a balanced approach, similar to the Buddhist concept of the 'Middle Path' in governance.
What this adds
The latest inflation mix supports Lagarde's distinction between initial price surges and embedded inflation.
Compensation per employee slowed from 3.6% to 3.3% in Q2, reinforcing the ECB's focus on broader underlying inflation.
The September projections still see headline inflation averaging 3.0% in 2026, 2.5% in 2027, and 2.1% in 2028, with risks tilted upward for inflation and downward for growth.
Background
ECB President Christine Lagarde reiterated on Monday that the central bank remains on a 'middle path' in its monetary policy approach, despite the worsening inflation outlook.
The Middle Way or Middle Path as well as "teaching the Dharma by the middle" are common Buddhist terms used to refer to two major aspects of the Dharma, that is, the teaching of the Buddha. The first phrasing, the Middle Way, refers to a spiritual practice that steers clear of both extreme asceticism and sensual indulgence.
What's confirmed
- She said the ECB currently sees “higher inflation ahead but no signs yet that it is becoming embedded,” adding that a “measured response” remains appropriate.
- Applying the Buddhist “Middle Path” to policy suggests that effective governance requires neither an all-powerful surveillance state nor anarchy.
What's still developing
- ECB President Christine Lagarde said in Brussels on Monday that the central bank remains on the “middle path” after raising interest rates by 25bp earlier this month, arguing that the energy shock is too large to ignore but has not yet become embedded deeply enough to justify a more forceful response.
- Lagarde stressed that wages have so far shown no material response to the energy shock, leaving the ECB focused less on the initial price surge than on whether it begins spreading through wages and broader underlying inflation.
- The latest inflation mix supports that distinction.
- The outlook continues to be surrounded by high uncertainty.
- We remain in the “middle path” for monetary policy that I laid out earlier this year.
- The RBA said that it remains committed to bringing inflation back to its target, leaving the door open for further rate increases.