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Eurozone inflation edged higher in July, with headline CPI final rising from 2.8% to 2.9% y/y, confirming preliminary estimate and standing well above 2.0% recorded a year earlier. Core inflation also firmed from 2.4% to 2.5%, showing that latest increase was not purely an energy effect. Across EU as a whole, annual inflation rose from 2.9% to 3.0%.

Energy provided strongest fresh upward pressure, with annual inflation accelerating from 8.5% to 10.3% and contributing 0.94 percentage point to headline rate. Services remained largest source of inflation overall, with annual growth edging from 3.2% to 3.3% and contributing 1.55 percentage points. Non-energy industrial goods also strengthened from 0.7% to 0.9%, while food, alcohol and tobacco inflation slowed from 1.5% to 1.2%, providing some offset.

Monthly details reinforced uneven composition. Energy prices rose 2.7% m/m and services increased 1.1%, while non-energy industrial goods fell -2.2% and food, alcohol and tobacco slipped -0.1%. Inflation also remained highly dispersed across EU member states, ranging from 0.3% in Sweden to 8.2% in Romania, highlighting very different national inflation conditions beneath common headline.

For ECB, final July numbers reinforce case for maintaining a restrictive stance. Headline inflation is moving higher, core inflation has edged up, and services remain sticky above 3%, while renewed energy pressure adds another external inflation risk. Softer food prices offer some relief, but broader composition gives policymakers little reason to assume inflation is returning smoothly toward target, keeping further tightening firmly in discussion.

Data Summary

Key Takeaways

• Eurozone headline inflation rose from 2.8% to 2.9% y/y in July, confirming flash estimate.
• Core CPI also firmed from 2.4% to 2.5%, meaning headline acceleration was not solely an energy effect.
• Energy inflation accelerated sharply from 8.5% to 10.3%, increasing its contribution to headline inflation from 0.77 to 0.94 percentage point.
• Services inflation edged up from 3.2% to 3.3% and remained largest contributor to inflation at 1.55 percentage points.
• Non-energy industrial goods inflation strengthened from 0.7% to 0.9%, adding to broader firmness.
• Food provided main offset, with food, alcohol and tobacco inflation slowing from 1.5% to 1.2%, while unprocessed food eased from 3.1% to 2.4%.
• Inflation dispersion across EU remained wide, ranging from 0.3% in Sweden to 8.2% in Romania.
• For ECB, mix is uncomfortable: stronger energy is lifting headline CPI, while firmer core and services inflation make it harder to dismiss July increase as temporary commodity noise.

Full Eurozone CPI final release here.

UK inflation accelerated in July, with CPI rising from 2.6% to 2.9% y/y, matching consensus. Prices increased 0.3% m/m, compared with 0.1% in July 2025. Core CPI held at 2.6% y/y, slightly above expectations for 2.5%, but composition was less inflationary than headline suggested: services inflation eased from 3.6% y/y to 3.4%, while goods inflation accelerated from 1.7% y/y to 2.2%.

Housing and household services drove much of increase, with annual inflation jumping from 1.2% y/y to 4.6% and prices rising 2.3% m/m on month. Health inflation also accelerated from 2.5% y/y to 3.7%, while clothing and footwear moved from -0.5% y/y to 0.5% and alcohol and tobacco from 2.1% y/y to 2.5%. Those increases were partly offset by softer food inflation, which eased from 1.7% y/ to 1.3%, and transport inflation, which slowed sharply from 5.7% y/y to 3.6%.

Overall, July was a firmer inflation report at headline level without showing a broad-based reacceleration in underlying pressure. Services inflation, one of more persistent parts of UK price picture, continued to cool, while acceleration was concentrated more heavily in goods and housing-related categories. That leaves headline inflation moving higher even as some of stickier components show further moderation.

Data Summary

*Monthly comparison in supplied ONS release is against July 2025.

Key Takeaways

• UK headline CPI accelerated from 2.6% to 2.9% y/y in July, exactly matching consensus.
• Core CPI held at 2.6%, slightly above expectations for a decline to 2.5%.
• Inflation composition was mixed rather than uniformly hotter. Goods inflation accelerated from 1.7% to 2.2%, while services inflation eased from 3.6% to 3.4%.
• Housing and household services provided a major upward contribution, with annual inflation jumping from 1.2% to 4.6%.
• Health inflation also strengthened from 2.5% to 3.7%, while clothing and footwear returned to positive annual inflation.
• Several categories cooled, including food inflation from 1.7% to 1.3%, transport from 5.7% to 3.6%, and restaurants and hotels from 4.4% to 4.0%.
• Overall, July delivered firmer headline inflation without a broad resurgence in persistent services pressure, leaving underlying picture more balanced than 2.9% headline alone suggests.

Full UK CPI release here.

RBA Deputy Governor Andrew Hauser sharpened central bank’s tightening warning on Wednesday, saying another rate increase would follow if inflation stops improving. Speaking at an event in Queensland, Hauser said: “If those upside risks to inflation crystallise and we don't see inflation coming down, we will have to raise interest rates again and we will do so.” The message reinforces RBA’s August decision to retain explicit tightening optionality even after holding cash rate at 4.35%, following 75bps of increases since February.

Hauser identified three upside risks in particular: Middle East conflict, global AI boom and weak productivity growth. Middle East risk has become increasingly relevant as oil prices climb again, potentially feeding energy and transport costs into inflation. AI investment presents a different challenge by supporting demand and competing for resources, while poor productivity limits economy’s ability to grow without generating additional price pressure. Taken together, these risks leave RBA unwilling to assume recent disinflation will continue automatically.

At the same time, Hauser acknowledged that tighter monetary policy is already slowing economy. RBA has seen “a bit of a slowdown in consumption and employment growth,” although he added that policymakers “need to see more still.” He rejected a more severe characterization of current conditions: “That is not a slump. It is not a depression... but it's a lot slower than Australia has known in the past and it's a lot slower than recently.” Recent softer inflation readings and weaker housing conditions therefore matter, but RBA does not yet appear convinced demand has cooled enough to neutralise upside risks.

Markets are reflecting that uncertainty, pricing around a 60% chance of another increase to 4.60% by December as renewed oil strength brings imported inflation risks back into focus. Hauser’s remarks do not make another hike inevitable, but they clarify RBA’s reaction function: continued disinflation allows policy to stay on hold; stalled inflation combined with materialisation of oil, AI or productivity risks would bring tightening back. That leaves upcoming inflation and labor-market data as the evidence needed to decide which side of that conditional warning becomes relevant.

Key Takeaways

• RBA Deputy Governor Andrew Hauser made tightening bias more explicit, saying rates “will have to” rise again if upside inflation risks materialise and disinflation stalls.
• Hauser identified Middle East conflict, global AI boom and weak productivity as three key upside risks to inflation.
• He acknowledged consumption and employment growth have slowed, but said RBA “needs to see more still,” indicating current cooling is not yet sufficient to remove inflation concern.
• Hauser rejected a recessionary interpretation, saying economy is “not a slump” or depression, but is growing much more slowly than Australia has been used to.
• Markets are pricing roughly 60% probability of another hike to 4.60% by December, reflecting renewed concern that oil and other inflation risks could keep RBA tightening option alive.
• Core message is conditional but hawkish: continued disinflation supports a hold; stalled disinflation alongside stronger upside risks would bring another hike back into play.