Euro Inflation Watch | Europe Heating Up (Again)

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Idea

July 31, 2026 03:36 PM GMT

Euro Inflation Watch | Europe

Morgan Stanley Europe S.E.

Jens Eisenschmidt

Chief Europe Economist

Heating Up (Again)

Jean-Francois Ouvrard

Deputy Chief European Economist

July HICP rose to 2.9%Y and core to 2.5%Y. On current

commodity prices, we expect more strength in headline ahead

with core hovering around that level for some months. Our ECB

call is unchanged.

Claire A Thuerwaechter

Economist

Morgan Stanley & Co. International plc

Chiara Zangarelli

Economist

Broadly as expected: Headline inflation rose to 2.9%Y in July from 2.8%Y, in line

with our forecast (here) and consensus. The print came in very much in line with our

Morgan Stanley Europe S.E.

expectation. Energy inflation rose driven by fuel prices and likely also natural gas.

Food inflation fell, even a bit more than we expected, reflecting disinflation in a

couple of items (coffee, meat etc). Services inflation increased to 3.3%Y from 3.2%Y,

as we expected. From the details in some countries, we don’t think the uptick was

broad based or reflected the impact of higher energy prices. Lastly, goods inflation

rose to 0.9%Y from 0.7%Y, a bit more than we expected and explained the slight

upside surprise in core (at 2.5%Y after 2.4%Y in June vs our forecast for a stable

print). We suspect chipflation and some idiosyncratic factors, not the transmission

of energy costs played a role here.

Gabriela Silova

Economist

Morgan Stanley & Co. International plc

Skander Garchi Casal

Economist

Exhibit 1 : We see 2026-27 HICP inflation

above target

Euro Area HICP: Morgan Stanley Forecasts (%Y)

Higher energy prices take headline further up from here: Our updated path for EA

3.5

inflation takes on board current market pricing for oil and natural gas (averaged

3.0

over the past 10 days). With that, energy inflation is projected to move further up in

2.0

the next months and then drop sharply in Mar-27. This would keep headline above

1.5

3%Y in the next months, with a peak of 3.4%Y in Dec-26. Headline would then drop

1.0

below 2% in 4Q27.

2.9

New

2.6

sideways in the next months.…