European Central Bank President Christine Lagarde said eurozone inflation has not yet produced so-called second-round effects, offering cautious reassurance that rising prices have not triggered a self-reinforcing wage-price spiral.
Christine Lagarde, president of the European Central Bank, signaled that the bloc’s inflation problem has not yet escalated into one of the more difficult situations policymakers fear: a cycle in which higher prices push workers to demand bigger pay rises, which in turn push prices higher still. That kind of feedback loop — known as a second-round effect — can make inflation far harder and more costly to bring under control.
The distinction matters because it shapes how aggressively the ECB may need to act. When inflation stays at the level of initial shocks — such as energy or food costs — central banks can sometimes afford a more measured response, allowing those pressures to fade on their own. But once wages and business pricing behavior shift durably upward, rate hikes tend to need to go further and last longer.
Lagarde’s remarks come as the ECB has been navigating a delicate path. The bank has raised interest rates significantly since inflation surged across the eurozone in recent years, and policymakers have been watching closely for signs that inflation expectations are becoming unanchored. The absence of broad second-round effects, if confirmed by incoming data, could give the ECB some room to avoid additional tightening — or to consider easing policy sooner than feared.
Still, analysts caution that the picture can shift quickly. Labor markets across much of the eurozone have remained resilient, and wage negotiations in several member states have produced above-average settlements in recent quarters. The ECB will be watching upcoming inflation readings, employment costs, and business surveys carefully before drawing firm conclusions.
For investors and everyday Europeans, the message is measured but notable: the worst-case inflation scenario — a persistent, self-sustaining price spiral — has not materialized, at least not yet. That does not mean the fight is over, but it suggests the current bout of inflation may be more manageable than some had feared.
The ECB’s next policy meeting and fresh inflation data from the eurozone will be the key tests of whether Lagarde’s assessment holds.
