In response to the decline in inflation, the ECB has lowered its benchmark interest rate from a peak of 4% to 2%.

The ECB has adopted a symmetrical approach to inflation, treating both positive and negative deviations as equally undesirable, and is prepared to implement robust monetary policy measures in response to significant deviations.

Lagarde highlighted the inflation spike resulting from the Russian invasion of Ukraine, where the ECB's baseline prediction was 5.5% for 2022, but actual inflation reached 8%.

She warned that pricing adjustments are not linear, suggesting that inflation could rise or fall sharply in response to new economic conditions.

She highlighted that inflation has become more unpredictable due to recent economic shocks, including the COVID-19 pandemic and Russia's invasion of Ukraine.

To mitigate these risks, she emphasized the importance of taking early and decisive action, including tightening monetary policy promptly to avoid a detrimental feedback loop between wages and prices.

Christine Lagarde, the President of the European Central Bank (ECB), has expressed concern that increased uncertainty in the global economy will lead to more volatile inflation rates, necessitating stronger policy measures to maintain price stability around the ECB's target of 2%.

During a speech at the ECB Forum on Central Banking in Sintra, Portugal, Lagarde noted that the post-pandemic economic environment has fundamentally altered corporate pricing behaviors, making firms more responsive to supply shocks.

The ECB's annual conference in Sintra serves as a significant gathering for central bankers and economists, akin to the U.S. Federal Reserve's meeting in Jackson Hole, with notable participants including Fed Chair Jerome Powell.

Lagarde observed that companies are adopting more flexible pricing strategies, which could lead to quicker adjustments in response to both major and minor economic disruptions, thereby increasing inflation volatility.

Prompt action against low inflation will also help reduce the duration of ultra-low interest rates, which the ECB has been maintaining.

Currently, inflation in the euro zone is approximately 2%, aligning with the ECB's target after a period of significant fluctuations caused by massive stimulus efforts.