Euro Zone inflation risk quite content, says Lagarde

Helsinki (Reuters): The economy of the euro zone is handling American tariffs better than expected above, leaving the “quite contained inflation risks” on Tuesday, the European president of the Central Bank, Christine Lagarde, said Tuesday.

The ECB has maintained stable interest rates since June and pointed out that I was not in a hurry to further adjust politics, since the economy was maintained and inflation was now firmly around its 2%target.

Financial investors have largely valued any additional rate reduction and most politicians argue that December is the first moment for any real discussion about whether to provide the economy more support.

“As we can model the future, the risks for inflation appear quite contained in both directions,” Lagarde said in Helsinki. “With the policy rates now 2%, we are well located to answer whether the risks for the change in inflation, or if new clashes arise that threaten our goal.”

She argued that commercial shocks are not creating new inflationary pressures, so the ECB did not face the compensation of classical policies to have to deal with a period of growth stagnation and increased inflation.

The ECB staff anticipated a greater success of commercial tensions, but the real results were more benign since there were no interruptions in the supply chain, governments intensified their own expenses to increase growth, there were no reprisals for the EU and the euro increased in value despite the expectations of weakening.

“This reflects the fact that the imposition of American tariffs coincided with a broader reevaluation of the country’s position in the global financial system,” said Lagarde. “Investors began to question whether the US dollar would continue to justify their status as the best safe currency.”

Uncertainty weighed on growth, but not as much as thought, because the eventual commercial agreement supported the fastest confidence than expected.

Lagarde also pointed out government decisions to spend more in defense as a key factor for a relatively benign result.

“Now the government investment is expected to add 0.25 percentage points to growth between 2025 and 2027, compensating around a third of commercial shock,” said Lagarde.

(Anne Kauranen report; Koranyi Balaz writing, William Maclean edition)