Global inflation watch – Still no clear signs of tariff-driven inflation

Overview: July inflation data offered few surprises - and still no clear signs of tariff-driven inflation. Underlying price pressures remain on a moderating trend in both the US and the euro area. Oil prices have edged lower amid OPEC's production hikes and concerns of weaker economic outlook. We think the ECB is already done with rate cuts but expect the Fed to resume its easing cycle in September.  

Inflation expectations: Both survey and market-based inflation expectations measures have remained relatively stable over the past month. Short-term US expectations remain elevated due to the tariffs, but longer-term expectations are well anchored on both sides of the Atlantic.  

US: July CPI landed close to expectations on both headline (+0.19% m/m SA, June +0.29%, forecast +0.2%) and core terms (+0.32% m/m, June +0.23%, forecast +0.3%). Surprisingly, the modest uptick in core inflation was mostly driven by services. This would typically be seen as a sign of sticky inflation and hence interpreted as a hawkish signal. However, the fact that core goods and food inflation remained stable at still modest levels alleviated markets' concerns of rapid pass-through of tariff-related costs. While we do expect core goods inflation to pick up speed towards fall, the reading supports the case for the Fed's September rate cut.

Euro: Euro area inflation remained steady at 2.0% y/y in July, slightly above expectations of a decline 1.9%. The primary driver was food price inflation, which rose to 3.3% y/y from 3.1% in June, while core inflation remained at 2.3% y/y as expected. Services inflation eased to 3.1% y/y, with monthly price increase in services at only 0.19% m/m. This brought the 3m/3m momentum down to 3% for the first time since January, indicating an easing momentum in services. The ECB's June staff projections estimated headline inflation for Q3 2025 to average 1.9%, and as we anticipate inflation to rise in August and September, it will likely exceed the ECB's expectations.

China: CPI for July dropped to 0.0% y/y from 0.1% y/y while core CPI increased again from 0.7 % y/y to 0.8% y/y. PPI deflation was flat at-3.6% y/y. 

Download The Full Global Inflation Watch