ECB President Lagarde: Inflation will fall in the medium term, focus on the digital euro

Frankfurt. ECB President Christine Lagarde gives people in the euro area hope that inflation rates will fall again in the medium term. "In our current forecasts, inflation will continue to rise until the end of '26. So it will get worse before it gets better, but it will get better," Lagarde told the news portal "ZDFheute.de".

Since oil prices have skyrocketed with the Iran war, consumer prices in the euro area have risen sharply. In August, the inflation rate was 3.3 percent, further above the inflation target of the European Central Bank (ECB), which is aiming for 2.0 percent in the medium term. In response, the central bank raised the deposit interest rate, which is important for savers and banks, to 2.5 percent on Thursday.

Bundesbank President Joachim Nagel does not rule out the possibility that the ECB will have to further increase interest rates. It is still too early to speculate about this, Nagel told CNBC. That depends on the development of energy prices. He cannot rule out that the central bank will move into a “slightly restrictive area” - i.e. into an interest rate level that will dampen the economy somewhat. Nagel referred to oil prices, which recently climbed above the $100 per barrel (159 liters) mark for the benchmark Brent crude. "We see that energy prices increased last week; now we are close to $110."

Lagarde had already stated after the interest rate decision that inflation was likely to remain well above the target value “for a longer period of time”. According to the latest forecast, the ECB expects inflation to be 3.0 percent this year. The 2.0 percent mark will also be missed in 2027 (2.5 percent) and 2028 (2.1 percent).

Lagarde also emphasized the importance of the digital euro to “ZDFheute.de”. People are increasingly shopping online. "That's why we have to make sure that the central bank's money is also digital, because we can't be left out of this game. So there will still be banknotes, nice ones, I hope, and a digital euro, because if everything becomes very digital, we have to be in the game with both: banknotes and digital."

The digital euro is intended to complement euro cash, but not replace it. With the digital euro, the euro central banks want to counter US providers such as Paypal, Mastercard and Visa, which dominate the market for digital payments in Europe, with a European offer. The introduction of the digital euro is planned for 2029.