The expectation that the surge in inflation, driven by this new energy shock, would be more moderate than in 2022 (with demand being less dynamic and supply less constrained) is confirmed. However, following the Memorandum of Understanding (MoU) signed in mid-June between the United States and Iran, inflationary risk has eased but has not disappeared. This MoU had seemed to reduce the risk of a severe escalation of the conflict, but since mid-July and the resumption of hostilities, it has entered a new phase of tensions, once again driving up hydrocarbon prices
The assessment of the July data is positive and reinforces the encouraging signals from May and June data. According to PMI business climate surveys, price pressures continued to ease, as did supply tensions through slightly shorter delivery times. The business climate in the manufacturing sector resumed improving, almost erasing the two months of previous decline. The business climate in the services sector and consumer confidence continues to recover. The July surveys are not impacted by the resurgence of tensions in the Middle East and by the ensuing rise in energy prices, partly because responses were, for the most part, collected beforehand. A relapse in August is highly likely if the geopolitical situation remains degraded
The memorandum of understanding, signed in mid-June between the US and Iran, improved US data before hostilities resumed in mid-July. Headline CPI posted its first monthly drop (-0.4% m/m) since 2020 in June, driven by gasoline prices (-9.7% m/m). It stood at 3.5% y/y, down sharply from May’s 4.2% but still 1.1pp above pre-conflict levels. Inflation excl. energy eased as well (-0.2pp to 2.7% y/y), edging back towards its February reading.
The acceleration in consumer price inflation since February 2026 is much less significant than in 2022, and it stopped in May and June 2026. The average CPI inflation rate for the fifteen main emerging economies was estimated at 4.6% y/y in June, against 4.8% in April. The inflationary shock is more moderate than in 2022 notably due to more limited spillovers to agricultural and food prices.
Oil and gas markets lack direction amid persistent instability in the Strait of Hormuz. While oil prices have thus far reacted similarly to the two energy shocks (2022 and 2026), the rise in gas prices remains lower than the increase seen following Russia's invasion of Ukraine.
