Christine Lagarde will face an unusual test this week when the European Central Bank president is likely to push back against a growing belief among investors that the ECB is underestimating future inflation and could raise interest rates next year.
Rising inflation is relatively new ground for the ECB, which for much of the past decade has consistently undershot both its own 2 per cent target and its forecasts on inflation — the main factor determining the central bank’s decisions on interest rates and asset purchases.
Yet the ECB governing council is not expected to change policy after it meets on Thursday. Instead the main focus will be on what Lagarde says afterwards about the inflation outlook and what this means for when it might raise rates.