ECB president Christine Lagarde says the bank’s March inflation forecast of 2.6% for 2025 will probably be revised upward when policymakers meet in June, confirming signals from other council members.

Earlier:

Summary:
Source: Christine Lagarde speaking on Italian talkshow Che Tempo Che Fa, Sunday

• Lagarde said the ECB’s March forecast of 2.6% inflation for this year will probably be revised at the June meeting, as conditions have evolved since its publication
• The March projection was released shortly after the outbreak of the Iran war, which governing council member Alexander Demarco told Bloomberg may have made it too optimistic
• Lagarde declined to say whether an upward revision would translate into a rate increase at the 11 June meeting
• She stressed the need to assess all available data and evaluate the medium-term impact of any action before reaching a conclusion
• Markets and economists are broadly pricing in a quarter-point hike, with several council members suggesting it may be unavoidable without a lasting US-Iran peace agreement

Christine Lagarde has signalled that the European Central Bank will revise its inflation forecasts upward when policymakers gather in June, confirming what several governing council members had already begun to indicate in the days prior.

Speaking on Italian television on Sunday, the ECB president said a March projection that put euro area inflation at 2.6% for this year would probably need to be revised, acknowledging that the situation had evolved materially since those estimates were published. The timing is significant: the March forecasts landed just as the US-Israel war with Iran was getting under way, before its full impact on energy prices had begun to feed through.

Governing council member Alexander Demarco had made a similar point in a Bloomberg interview in recent days, suggesting the March numbers may have been too optimistic. Lagarde’s Sunday comments put the president’s weight behind what had until now been a signal from the council’s periphery.

What Lagarde was notably less forthcoming about was what a revised forecast would mean for interest rates. She declined to indicate whether an upward inflation revision would place the ECB on course for a hike at its 11 June meeting, instead emphasising the degree of uncertainty still clouding the outlook. The bank needed to look at all available data, assess how the economy would evolve over coming quarters, and weigh whether action was warranted and what its medium-term impact would be, she said. The ECB’s 2% medium-term target remains the reference point.

Markets are not waiting for further guidance. Economists and investors are broadly positioned for a quarter-point increase on 11 June, and a number of Lagarde’s colleagues have suggested that outcome is close to inevitable unless a durable peace agreement between the United States and Iran emerges before the meeting. With no such deal yet signed, the base case for a June move is hardening.