ECB’s Lagarde: ‘Not overly concerned by the export of inflation to Europe’

The European Central Bank is “not overly concerned” by the impact of inflation abroad on the euro zone, the institution’s President Christine Lagarde told CNBC Wednesday.

Asked about the potential effect on Europe if inflation resurges in the U.S., Lagarde said: “If there is reigniting of inflation in the United States it will be an issue for the United States for sure, that is where the first and prime consequences will be.”

“We are not overly concerned by the export of inflation to Europe.”

“There will be interesting phenomenon that we will watch. The exchange rate, for instance, will be of interest, and … may have consequences, but we are certainly interested to see the U.S. grow, because growth in the U.S. has always been a favorable factor for the rest of the world,” she added.

The ECB chief stressed that policymakers were confident inflation would come to the bank’s 2% target over the course of 2025, and that the disinflation process would continue. Annual inflation in the euro area came in at 2.4% in December, posting a third straight monthly increase after hitting a low of 1.7% in September.

Lagarde also said that “markets anticipate vastly different monetary policy moves in the next few months” from the U.S. and the euro zone, as the ECB and Federal Reserve “did not reduce rates at the same pace.”

She noted, “We do have that divergence, that has to do with a different economic setting at the moment between the U.S. and Europe.”

The ECB cut interest rates four times last year, reducing the deposit facility — its key rate — to 3%. Markets are now pricing in a further reduction to 2% by September 2025. That compares with less than a half-percentage point rate trim priced in for the Federal Reserve over the same period.

In their most recent set of macroeconomic projections in December, ECB staff said they expect annual inflation in the euro area to average 2.1% this year, adding that progress on disinflation was “well on track.”

It comes as the bloc grapples with lackluster growth, with its biggest economy Germany recording its
second straight annual GDP contraction in 2024.