ECB’s Lagarde: Headline inflation may rise again slightly in the coming months

European Central Bank (ECB) President Christine Lagarde said on Monday that the economy is likely to remain weak for the rest of the year, and wage pressures remain strong. Regarding inflation, she warned that it may tick up again in the coming months. She delivered a speech at the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament.

Key takeaways from the speech:

Wage pressures, meanwhile, remain strong. 

Looking ahead, we expect the weakening of inflationary pressures to continue, even though headline inflation may rise again slightly in the coming months, mainly owing to some base effects. However, the medium-term outlook for inflation remains surrounded by considerable uncertainty.

Euro area activity has stagnated in recent quarters and is likely to remain weak for the rest of the year. 

Manufacturing output has continued to fall and activity in the services sector is weakening further. Despite the slowdown in activity, the labour market remains resilient overall, although there are some signs that job growth may lose momentum towards the end of the year.

This is not the time to start declaring victory. We need to remain attentive to the different forces affecting inflation and firmly focused on our mandate of price stability.

Market reactions

Market participants mostly ignored Lagarde’s comments. EUR/USD is trading flat around 1.0940 and EUR/GBP is holding onto modest losses, hovering around 0.8665.