Inflation: No Change in July in US and EU

The latest figures on inflation show a largely unchanged picture with inflation running at about the same levels as in June. In the US inflation to July was 2.7% compared with the same in June. This was greeted with relief as an increase from the President’s tariff policy had been expected. In the EU inflation remained at 2% and in Ireland, in terms of the EU’s Harmonised Index, at 1.6%, also unchanged from June. In terms of the CPI, inflation in Ireland was slightly down from 1.8% to 1.7%.

Fear that inflation will worsen in the US and the fact that the rate is ell above the 2% target prompted the Federal Reserve to keep interest rates unchanged. But the news that the economy had been adding few jobs in recent months, following a sharp revision by the Bureau of Labor Statistics, came too late to affect the decision. It seems likely that the next meeting will see a reduction.

In the EU the situation is completely different in respect of a better inflation picture and a much slower rate of activity than in the US. However, after eight consecutive reductions, and with uncertainty about tariffs, it seems the ECB will hold off further reductions for some months.

The second graph shows some detail on the Irish CPI for the period to July. After a pick up at the end of 2024, inflation in the main upward influences have mostly levelled off but with a sharp drop in Transport. That was due to a decline in prices for air fares and fuel. On the other hand Food is running well ahead of the average. Services, especially hospitality, are also rising rapidly and helping to offset negative influences elsewhere in the index.

Oil and gas are critically important commodities and major influences on prices. In most of 2024, gas had been increasing in price while oil has been falling. But since the start of this year until recently prices of both have been falling. Despite a slight uptick in recent months, reversed since the end of July, trends indicate that the situation in the Gulf appears to have had a relatively minor impact on prices. Indicators of weak demand in China, the uncertain impact of Trump’s tariff policy and the decision by Saudi Arabia to facilitate lower oil prices, are the main influences.