Christine Lagarde has warned that the European Central Bank “is not done” raising interest rates, saying inflation “still has a way to go”.

Her comments came after a sharp fall in European wholesale energy prices combined with an easing of supply chain bottlenecks encouraged hopes that eurozone inflation was slowing. US inflation also fell in October and global data indicators suggest that this year’s rampant global inflation has peaked.

But the ECB president struck a bearish tone. “I would like to see inflation [as] having peaked in October, but I’m afraid that I would not go as far as that.”

Some investors expect that the ECB will move to smaller rate increases, in line with the US Federal Reserve, of 0.5 percentage points rather than 0.75 percentage points.

But Lagarde’s comments to MEPs indicated that the ECB was not ready to slow down. “We have to stop stimulating demand,” she said, adding that the bank was in “highly accommodative territory”, indicating it had to tighten further.

Soaring energy and food prices sparked by Russia’s invasion of Ukraine and the lifting of coronavirus lockdowns sent eurozone inflation to an all-time high of 10.6 per cent in the year to October.

Economists polled by Reuters expect eurozone inflation to slow to 10.4 per cent in November, when the latest price data is released by the European Commission’s statistics agency on Wednesday. But Lagarde said there was still some “pass-through” from higher wholesale energy prices to consumer prices to come.

Natural gas prices had fallen about 40 per cent since their peak in September, but Lagarde said this reflected mild recent weather in Europe that reduced energy consumption and helped to fill gas storage tanks, adding that conditions could change for the worse next year.

“We need to be very, very careful because on the gas futures markets the drop has not been as significant, and the causes behind this decline of gas and the reduced pressure on the short-term rates, we have to be careful whether they will last,” she said.

Lagarde’s comments signal there is likely to be a lively debate at next month’s ECB meeting, with policymakers split between keeping up the pace of rate rises to avert a wage-price spiral and switching to smaller increases on the back of signs of a recession.

Philip Lane, the dovish ECB chief economist, said last week that euro area consumer price growth would start to fade next year and many of the arguments for another 0.75 percentage point rate rise were “no longer there”.

But Klaas Knot, the hawkish head of the Dutch central bank, said on Monday it was not a “foregone conclusion” that Europe would enter recession and worries about ECB over-tightening policy were “a bit of a joke”. 

Knot added: “We have to prepare ourselves for a protracted period in which policymakers and central bankers will have to be on it and focus on restoring price stability.”

Analysts at Goldman Sachs said on Monday that a change in how Italy calculates energy prices could propel overall eurozone inflation to a new record of 11 per cent in November, which would put pressure on the ECB to maintain the size of its rate rises.