European Central Bank President Christine Lagarde downplayed the risk of inflation spreading from the energy sector into other parts of the economy.
Her remarks came after news of her early departure overshadowed the ECB's decision on Thursday to keep interest rates unchanged.
Lagarde sought to keep the press conference focused on monetary policy, and revealed that she and other policymakers had discussed the possibility of raising rates but ultimately rejected the idea.
The reason behind that decision is the lack of evidence that soaring energy prices are triggering excessive wage demands or pushing inflation expectations significantly higher.
Still, with investors leaning toward expecting the ECB to raise the deposit rate by another 25 basis points in December, Lagarde left the door open to further tightening, describing the ECB's path as "clear."
"We are watching closely. At this point, we do not see a risk of second-round effects beyond what is already incorporated in our projections. Right now, we do not see a clear risk of second-round effects," Lagarde told reporters in Frankfurt on Thursday.
Market bets on a December ECB rate hike edged up slightly, with pricing showing a 22 basis point increase, equivalent to an 88% probability, up from 80% before Thursday's rate decision.
"The ECB left rates unchanged in October, and despite the recent rise in commodity prices, its statement sent a clearly dovish signal. We believe the Governing Council is paving the way for the end of this tightening cycle, although the ECB still retains the possibility of another hike in December."
News of Lagarde's early departure intensified market concerns over energy costs and the situation in France, and sparked a succession race. Former central bank governors of Spain and the Netherlands have emerged as contenders to succeed her and take charge of monetary policy in the euro area.
On borrowing costs, the ECB is currently standing pat. It has raised rates twice since the war with Iran hit energy markets. Both the ECB and the Federal Reserve kept rates unchanged this week, and the Bank of Japan is expected to do the same on Friday.
ECB policymakers are widely expected to raise rates again in December, when updated economic forecasts will show how severe inflationary pressures are. Rising global bond yields are dampening demand, and market, fiscal and political tensions plaguing France are further amplifying the rise in global bond yields.
"While the full impact of the energy shock is still unfolding, underlying inflation has so far remained broadly stable, and wages have not yet shown a clear reaction at this stage," the ECB said in its statement. "Since the Governing Council's last meeting, financing conditions have tightened, which may weigh on inflation and economic growth."
Lagarde also paid particular attention to core price increases. Core prices exclude volatile items such as energy and food. "In our three-part assessment framework for monetary policy decisions, underlying inflation may take on a particularly important role," she said.
Recent energy price increases pushed headline consumer price inflation to 3.8% in September, and inflation expectations have also risen. Since the ECB's last policy meeting, oil prices have risen by more than 6%, while natural gas prices have climbed to their highest level in nearly four years.
The euro area economy may already be feeling the strain: business activity momentum and confidence are both weakening. Before Eurostat releases data on Friday, a Bloomberg survey of analysts showed that third-quarter economic growth may slow to 0.2%.
"The latest data indicate that the euro area economy continued to expand in the third quarter," Lagarde said, while also noting that risks to the economic outlook are tilted to the downside. "At the same time, the renewed rise in energy prices has hit consumer confidence, and higher financing costs may also weigh on the economy."
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