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Prices remain stable in the Eurozone as inflation came in at 2% for July, the sixth consecutive month where year-on-year inflation has been 2.3% or less.
Particularly in comparison with its neighbour across the Channel — the UK has not had inflation as low as 2.3% since October 2024 — inflation appears to have been tamed.
A strong Euro throughout 2025 has made imports cheaper, combining with declining energy prices to dampen inflationary pressures.
This has allowed the European Central Bank to take a knife to interest rates over the past year, following an aggressive strategy that has left the deposit rate at 2%. Policymakers had been hoping this would help to engender economic growth in the bloc, but a disappointing 0.1% growth in Q2 suggests that this has not yet had the desired effect.
But the imposition of 15% tariffs on EU goods exported to the US threatens a darker outlook for the Eurozone economy. Although an even more worrying 30% rate has been avoided with the deal negotiated with the US by European Commission President Ursula von der Leyen, this deal will lead to an increase in prices in the Eurozone. German Chancellor Friedrich Merz has already expressed his fear that we will see a spike in inflation. The ECB will certainly wait and see before cutting interest rates again.
The ECB has played its hand well so far. It has calmed inflation and at the same time lowered interest rates to give the economy the best chance of growth. But things have changed — shockwaves to the foundations of our global economic system may be about to undo its good work when victory appeared so close.
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