Global inflation cools but energy costs remain high

Global inflation showed signs of cooling in July, yet energy costs remain elevated, keeping central banks on alert. In the US, consumer prices rose 3.4% year-on-year, down from 3.5% in June, while wholesale inflation slowed more than expected. However, gasoline prices are still up nearly 25% from a year ago, and the ongoing Iran war continues to fuel uncertainty Source: AP News, NPR. In the UK, inflation is forecast to rise to 2.9% in July, driven by a 13% increase in the energy price cap, with the Bank of England predicting 3.2% by year-end Source: The Guardian. Japan's core inflation is expected to accelerate to 1.8%, with wholesale inflation at 7.2% Source: CNA, CNBC.

Policy divergence

Central banks are responding differently. The Federal Reserve is divided, with three officials dissenting in favor of a rate hike, but markets now see a September hike as unlikely after benign inflation data Source: AP News, CNA. The Bank of England is considering a rate rise as early as September, while the Bank of Japan is expected to hike again, possibly as soon as September Source: The Guardian, CNA.

Consumer strain

Consumers are feeling the pinch. US retail sales fell 0.6% in July, the biggest drop since May 2025, and wage growth is slowing, with average wages up 3.2% but not keeping pace with inflation Source: AP News, NPR. In the UK, households face a renewed cost-of-living squeeze, with the government announcing measures to ease pressure Source: The Guardian.

Market reaction

Despite inflation concerns, US stocks hit record highs, with the S&P 500 closing at 7,798.99, as investors welcomed easing price pressures Source: CNA. However, some analysts caution that underlying inflation remains sticky, and the 30-year Treasury yield reached its highest since 2001 Source: CoinDesk, CNA.