Eurozone inflation remains steady at 2%, despite the depreciation of the euro versus the US dollar.
Eurozone Inflation Stays Steady at 2% in July, Euro Faces Mixed Fortunes
In a significant development for the European economy, Eurozone inflation held steady at 2% in July, according to preliminary figures released by Eurostat. This stability was driven by a 2.5% decline in energy prices, offsetting faster price increases in food, alcohol, tobacco, services, and non-energy industrial goods.
The steady inflation rate aligns with the European Central Bank’s (ECB) target and suggests moderation in price pressures. This could potentially reduce the urgency for further interest rate hikes or tightening measures. ECB policymakers are likely to interpret this as a sign that inflation expectations are anchored, which supports their current monetary stance. However, sectoral increases in food and services indicate ongoing inflationary pressures that the ECB will monitor [1][2].
The stabilization of inflation at the ECB's 2% target is good news for the euro currency. A stable inflation outlook generally supports the euro by underpinning ECB credibility and monetary stability. However, if the ECB signals a pause or slowdown in rate hikes due to steady inflation, the euro might face some downward pressure relative to currencies of central banks continuing tighter policies, such as the US Federal Reserve. Euro exchange rates will thus be sensitive to ECB communication and comparative monetary policy divergence [2].
Elsewhere, the global economy has been grappling with renewed trade tensions and market volatility. India, Canada, and Switzerland were among the hardest hit, while China was excluded pending a separate deadline on 12 August. These tensions, coupled with the Federal Reserve's decision to hold rates steady without signalling imminent cuts, contributed to the euro's 2.8% depreciation against the US dollar in the final week of the month, reaching a seven-week low of 1.14 [3].
The euro is on track for its worst week since 2022, with several large-cap stocks recording significant losses. AXA tumbled 6% after reporting a drop in net income, while Daimler Truck shed 5% following a profit warning. Several other stocks, including Siemens Energy, Sartorius, Airbus, and Daimler, also saw losses of more than 3%. European equity markets came under pressure, with the EURO STOXX 50 dropping 1.7%, the STOXX 600 slipping 1.3%, Germany's DAX falling 1.7%, Italy's FTSE MIB losing 1.9%, and France's CAC 40 declining 1.8% [4].
On a positive note, consumer prices were flat on a monthly basis, with prices remaining unchanged from June. Core inflation, which excludes volatile food and energy prices, was also unchanged at 2.3% [1][2].
Among member states, Estonia and Croatia recorded the highest annual inflation rates at 5.6% and 4.5% respectively [5]. Food, alcohol, and tobacco saw the highest annual inflation rate at 3.3% in July [1].
Sources: [1] Xinhua, "Eurozone inflation holds steady at 2 pct in July," 2025-08-01 [2] Trading Economics, "Euro Area Inflation Rate," 2025-08-01 [3] GMK Center, "Inflation in the eurozone stabilized at 2% in July," 2025-08-01 [4] European Newsroom, "Inflation in the Eurozone has stabilized around the target," 2025-08-01 [5] Eurostat, "Eurostat releases preliminary estimate for euro area inflation in July 2025," 2025-08-01
- The stability of inflation in the Eurozone at the ECB's target of 2% could potentially impact the business sector, as a steady inflation outlook may influence investors' decisions when considering investing in Eurozone-based companies.
- The dynamics of politics and general-news, such as trade tensions and central bank decisions, can have significant effects on the finance and business world, as seen by the euro's depreciation against the US dollar due to renewed trade tensions and the Federal Reserve's decision to hold rates steady.
