ECB's Lagarde predicts inflation to hit 2% target next year

European Central Bank President Christine Lagarde has hailed the "remarkable" unwinding of price pressures that have gripped the global economy over the past three years, emphasising its minimal impact on employment and predicting that European inflation will return to target by mid-2025.

"It is rare to avoid a major deterioration in unemployment when central banks rise interest rates in response to high energy prices," Lagarde said.

However, Lagarde cautioned that "uncertainty ahead is still profound", as the global economy is currently facing "transformational changes".

Lagarde delivered these comments during her keynote speech at the 2024 Michel Camdessus Central Banking Lecture organised by the International Monetary Fund (IMF) in Washington, an institution she led during pivotal moments such as the aftermath of the Great Financial Crisis and the Eurozone sovereign debt crisis. In her remarks, Lagarde stressed the need for adaptive monetary policy in an era of structural change.

In her speech, Lagarde outlined the immense challenges that the global economy has faced in recent years.

"Four years ago, we confronted the worst pandemic since the 1920s, the worst conflict in Europe since the 1940s, and the worst energy shock since the 1970s."

She explained that shocks have fundamentally altered the economic landscape and complicated the transmission of monetary policy.

She acknowledged that clearly defined inflation targets, flexible policy tools, and analytical frameworks capable of assessing and responding to economic shifts have enabled monetary policy to restore price stability without imposing excessive costs on the economy.

"Our monetary policy strategies have proved effective, mitigating trade-offs between inflation