Global inflation watch: No major surprises despite the tariffs
Overview: June inflation data landed close to expectations across both the euro area and the US. Underlying price pressures remained on a cooling trend despite the rising tariff costs. Commodity prices are moving sideways after a very temporary spike around the Isreal/Iran missile strikes one month ago.
Inflation expectations: Short-term inflation expectations have diverged sharply after April, with EA expectations well below 2% and US above 3% for the next 12M. US market-based inflation expectations continued to rise in July following the passing of Trump’s ‘Big Beautiful Bill’ and renewed tariff threats. Yet, longterm market-based expectations remain well anchored and US consumers’ inflation expectations moderated after the US-China trade deal.
US: June CPI landed close to expectations in both headline (+0.3% m/m SA, May +0.1%) and core (+0.23% m/m SA, May +0.13%) terms. The pick-up in headline inflation was mostly driven by the temporary uptick in energy prices, while food inflation landed close to expectations. On the core side, the continuing (and expected) slowdown in shelter inflation balanced modest acceleration in other services and core goods inflation. That said, we still see little evidence for strong and broad-based tariff-driven inflation. We expect the Fed to remain on hold in July and then resume quarterly rate cuts from September onwards.
Euro: Headline inflation rose to 2.0% y/y in June from 1.9% as expected. The increase was entirely due to energy inflation, which picked up due to base effects, while the increase in energy price due to the war between Iran and Israel did not show up as HICP energy only rose 0.1% m/m. Core inflation remained unchanged as expected at 2.3% y/y. Like in previous months, momentum in services inflation remained too high at 0.4% m/m s.a. (3.3% y/y) while no price increases were recorded on goods. Yet, as services inflation is now close to 3% in yearly terms, it receives less attention from the ECB, and generally, the governing council members talks very little about inflation and much more about trade and the euro.
China: CPI for June rose to 0.1% y/y from -0.1% y/y while core CPI increased from 0.6 % y/y to 0.7% y/y. PPI deflation dropped to -3.6% y/y from -3.3% y/y.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
