ECB President’s speech on inflation, economic outlook, and perceptions

Christine Lagarde, President of the European Central Bank (ECB), delivered a speech at the hearing of the Committee on Economic and Monetary Affairs of the European Parliament.

She highlighted that this week marks four years since Russia’s invasion of Ukraine, expressing solidarity with Ukraine.

The euro area has faced high inflation and geopolitical challenges. Inflation peaked at 10.6% in October 2022 and decreased to 1.7% in January 2026. The ECB’s monetary policy has been effective in bringing inflation back to the 2% target.

Despite inflation declining, surveys indicate that many citizens perceive prices to be rising faster than official data show. This perception gap influences economic behavior, expectations, and trust in institutions.

The euro area economy grew by 0.3% in Q4 2025 and is projected to grow 1.5% in 2026. Domestic demand, especially in services, drove growth, while manufacturing remained resilient amid geopolitical uncertainties. Inflation is expected to stabilize at 2% in the medium term.

The divergence between actual and perceived inflation is a global phenomenon. Perceptions tend to be higher than measured inflation due to personal experiences, focus on frequently purchased items, psychological biases, and external factors like media coverage and geopolitical uncertainty.

To address perception gaps, the ECB emphasizes maintaining its inflation target, improving communication, and investing in financial literacy. Initiatives include accessible explanations of policies and educational content through digital platforms.

Lagarde concluded by emphasizing the importance of trust and cooperation between the ECB and policymakers to reinforce the legitimacy of the euro and ensure effective monetary policy.