ECB’s Lagarde Says Higher Yields to Slow Growth and Inflation

Rising bond yields will curb economic expansion and limit the transfer of elevated energy costs to inflation, European Central Bank President Christine Lagarde said.

“While growth has been resilient, since our last meeting long-term interest rates have risen notably, which will slow growth and reduce pass-through by more than projected in our September exercise,” Lagarde said Monday.

With second-round effects so far absent, that means the ECB should adopt a “measured response as appropriate to keep inflation in check,” she told European lawmakers in Brussels.

ECB officials are weighing the need for further interest-rate increases to bring inflation under control and avoid higher energy costs spilling into broader prices and wage demands.

As well as the conflict in the Middle East, they’re grappling with a global bond-market selloff that’s a particular worry for some fiscally strained members of the euro zone.

Data this week are set to show euro-area inflation jumped to 3.7% in September from 3.2% in August, well above the 2% target. Consumers’ expectations of future price gains rose again last month.

Fading hopes for an imminent breakthrough in the Middle East pushed oil prices higher on Monday, reigniting worries that inflation is heating up. Investors are pricing almost four more quarter-point increases in the ECB’s deposit rate over the next year, adding to the two to date.

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