Christine Lagarde: The path ahead

Speech by Ms Christine Lagarde, President of the European Central Bank, at "The ECB and Its Watchers XXIII" conference, Frankfurt am Main, 22 March 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
22 March 2023

The euro area has been hit by an inflation shock, which is now working its way through the economy. While headline inflation is likely to decline steeply this year, driven by falling energy prices and easing supply bottlenecks, underlying inflation dynamics remain strong.

In such an environment, our ultimate goal is clear: we must – and we will – bring down inflation to our medium-term target in a timely manner.

But to achieve this goal we need a robust strategy, which takes into account the high levels of uncertainty we are facing today. As John Maynard Keynes once observed, "it would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain".

In current conditions, a robust strategy calls for a data-dependent approach to making policy and a clear reaction function so that the public understands the sources of information that will be important to us.

To that end, our future policy path will be determined by three factors: our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission.