As energy prices threaten inflation again, Lagarde’s European Central Bank legacy offers lessons - Atlantic Council

The Atlantic Council's analysis arrives as energy prices once again put upward pressure on inflation, reviving a debate that shaped Christine Lagarde's tenure at the European Central Bank. Her legacy is tied to guiding monetary policy through the post-pandemic inflation surge and the energy shock that followed Russia's invasion of Ukraine, when headline inflation in the euro area reached double-digit levels before retreating.

The central lesson concerns how a central bank separates temporary energy-driven price moves from persistent underlying inflation. Energy costs feed through to transport, food and production, so policymakers must judge whether a spike fades on its own or becomes embedded in wages and expectations. The ECB's response to the earlier episode remains a reference point for that judgment.

For markets, the key variable is expectations: if investors begin pricing a renewed inflation problem, bond yields and rate outlooks can shift before official data confirm a trend. What to watch is whether higher energy costs prove transient or start appearing in core inflation and wage settlements. That distinction, rather than any single price reading, is likely to shape how the ECB's approach is assessed.