European Central Bank's Philip Lane backs measured policy response as renewed energy shock lifts inflation to 3.8%

In a keynote speech at the European Central Bank Conference on Monetary Policy, Executive Board member Philip R. Lane argued that monetary policy should remain on a measured, meeting-by-meeting path as the ECB assesses a second wave of the energy supply shock alongside underlying inflation and monetary transmission. He reiterated that the ECB is not committed to a predetermined rate path after raising the policy rate from 2.00% to 2.50% across its June and September projection rounds. September headline inflation reached 3.8%, driven by energy inflation of 18.8%, while non-energy inflation remained at 2.3%. Lane said underlying indicators do not yet show that higher medium-term inflation has taken hold, although ECB projections anticipate non-energy inflation rising to 2.6% in 2027 before returning to 2.3% in 2028 as energy costs pass through to other sectors. The renewed increase in oil and gas prices creates upside risks to inflation and downside risks to growth, requiring the ECB to assess both direct price effects and the demand-reducing effects of weaker real incomes, uncertainty and tighter financing conditions. Other forces complicate that assessment. Fiscal policy is supporting growth in 2026 but is projected to tighten in 2027 and 2028, while artificial intelligence investment is boosting activity, exports and corporate borrowing from a low base. At the same time, the global AI boom is contributing to higher long-term interest rates, tightening euro area financial conditions and weighing on medium-term activity and inflation.