The European Central Bank kept key interest rates unchanged while warning that the growing scale and duration of the energy shock will push up inflation and weaken eurozone growth. ECB President Christine Lagarde said energy prices had exceeded the staff baseline projected in September, creating upside risks to inflation and downside risks to activity, including through indirect and second-round effects. Eurozone headline inflation rose to 3.8% in September from 3.2% in August, driven by an 18.9% increase in energy costs. Inflation excluding energy reached 2.3%, food inflation rose to 1.3% and services inflation to 3.2%, while goods inflation eased to 1.1%. Lagarde said headline inflation will likely remain well above the ECB’s 2% target over coming quarters. The economy continued expanding in the third quarter, supported by services, artificial intelligence-related investment and government spending on defense and infrastructure, while unemployment held at 6.4% in August. Growth risks remain tilted downward because of the Middle East conflict, the war between Russia and Ukraine, potential energy-supply disruptions, tighter financing conditions and renewed trade tensions. Bank lending rates for firms reached 3.8% in August, market-based corporate borrowing costs rose to 4.1% and mortgage rates to 3.6%. Lagarde called for temporary, targeted fiscal support and urged the European Union to complete the digital euro’s legal framework. Future rate decisions will remain data-dependent and meeting by meeting, with no predetermined path.