Economy in Brief: August 2026

Inflation in Italy rose 0.1% in July after being flat in June and rising 0.3% in May. The core HICP was not quite so lucky, rising 0.3% in July after declining 0.2% in June and rising 0.4% in May. The domestic inflation data from Italy show the headline rising 0.1% in July, flat in June, and rising 0.4% in May. The Italian core on its domestic measure rose 0.3% in July, was flat in June, and rose 0.3% in May.

HICP inflation has gotten unruly in Italy, rising 2.9% over 12 months, accelerating to a 5.2% annual rate over six months but then rising by only 1.6% at an annual rate over three months. Core inflation remains much better behaved but has seen some increasing pressure, rising 1.5% over 12 months, posting a 1.4% annual rate over six months, and rising at a 2% annual rate over three months.

The domestic measures of inflation show the headline is quite similar to the HICP headline, rising 2.9% over 12 months, accelerating to a 5.7% annual rate over six months, and posting a 2% annual rate over three months. The Italian core rate, however, accelerates steadily from 1.6% over 12 months to 2.2% annualized over six months and to 2.4% annualized over three months. It's not a terrible ramping up, but it is an acceleration; it takes the Italian core to a level above what the ECB projects as its target for the euro area as a whole.

Inflation diffusion in Italy over three months, six months, and 12 months is relatively well behaved at 53.8% over 12 months and over six months. There's a modest tendency to have more acceleration than deceleration; however, over three months the diffusion measure falls to 46.2%, indicating net deceleration. The net deceleration over three months is reassuring, with moderate three-month inflation rates having been posted on the various metrics cited above. However, even the slight acceleration tendencies are a little more disturbing, with the high headline inflation posted over six months and uncomfortably high near a 3% pace over 12 months.

On a quarter-to-date basis, inflation in the third quarter is off to a slow start, at 1.2% for the HICP and 1.4% for the domestic measure. Both the HICP and the domestic measures show core inflation higher at 1.8% for the HICP and at a 2.4% annual rate for the domestic metric.

The inflation problem in Italy isn't simply something that comes because of oil. Year-over-year, the headline for the HICP and the domestic measure are both under 2% in the quarter to date (QTD). But both measures are running at or above 2% in most of the sequential developments of inflation from 12 months to six months to three months. Core inflation is showing pressure for both the HICP and domestic measures sequentially as well as QTD. The Italian inflation report for July by itself is not so good as the monthly headline is well-behaved, but the cores are uncomfortable in both the HICP and domestic measures. Inflation clearly is not dead. It remains something to keep an eye on even in Italy where inflation trends had been better behaved.

Inflation in the Netherlands picked up in July compared to June. Both the June HICP and the domestic inflation index had shown declines. In July, the HICP posted an increase of 0.7% month-to-month while the domestic CPI gained 0.5%, both easily showing accelerations compared to June. Monthly inflation rates increased in July the same or greater than previously in May.

Sequentially inflation is not exactly busting out; however, the legacy of inflation is still a bitter pill for the ECB to try to swallow even for this small European economy. The total HICP is up at a 2.9% annual rate over 12 months; that rises to a 4% annual rate over six months and settles back down to 2.1% over three months. That deflation is mostly on the strength of the weak showing in June. The domestic inflation rate rises 3.1% over 12 months; it accelerates to 4.3% annualized over six months and then only backs down to 2.8% at an annual rate over three months, largely on the back of the decline posted in June.

The domestic components show inflation accelerating in all but three categories in July; eight of thirteen showed declines in June. Only two categories showed declines in May.

Sequentially, looking at the percentage changes from 12 months to six months to three months, the components are showing mixed results. However, for food and for alcoholic beverages & tobacco, inflation steadily decelerates from 12 months to six months to three months. Only recreation & culture show inflation accelerating over 12 months, six months and three months. However, if we look at inflation trends over three months compared to six months, and six months compared to 12 months, acceleration is present for housing & utilities, for healthcare, for recreation & culture, and for personal care & miscellaneous categories. The not-named categories have more complex patterns, not necessarily good or bad, just complex. The line on the table for diffusion shows us that over 12 months inflation is accelerating in 38.5% of the categories compared to what it had done a year ago. However, over six months, the category inflation rates are higher compared to 12 months in 61.5% of the categories. Over three months compared to six months, inflation is higher in 46% of the categories. By these diffusion calculations, inflation is accelerating over six months compared to 12 months but otherwise it is decelerating over three months and over 12 months.

As an overview, the 2.1% inflation rate for the HICP over three months looks excellent; however, in context, it's result of three months, two of which were terrible, one of which was excellent, and so that's not much to go on. The HICP progressive inflation rates other than three months are all too high at 4% and 2.9%; for the domestic CPI, the same statements are true, except that the three-month rate at 2.8% is even worse than for the HICP over three months. The inflation diffusion statistics by themselves are not bad over three months, showing inflation accelerating in only 46.2% of the categories. That's a pretty good result and inflation accelerating over 12 months in only 38.5% of the categories. But the six-month pace is too high, and the question is where the three-month number is going to settle in once we move down the road; the good June inflation statistic beginning to fade and drop out is another issue. June increasing is looking like an outlier.

So that's a significant question on the outlook for inflation, and it's basically a question that we ask for every country because we had that break because of the hopeful situation that had arisen around the Strait of Hormuz and the prospect of oil prices going back down. Now that prospect appears to have passed and we're not quite sure where we stand. That puts the outlook and all the trends in a danger zone.

German industrial production rose by 0.2% in June, continuing a string of increases. Production in Germany is on an accelerating path. It is unchanged over 12 months, but it has a 0.9% annual rate increase over six months and a 4.5% annual rate increase over three months, a clear acceleration in the rates of growth over the shorter periods.

That trend is accentuated by consumer goods that grow 2.3% over 12 months; output then steps up to a 3% annual rate over six months and advances to 18.9% at an annual rate over three months. Capital goods and intermediate goods interrupt the pattern to some extent. For capital goods, output falls 2.5% over 12 months, then weakens further, falling by 4.2% annually over six months, but it rebounds to grow at a 0.8% annual rate over three months. That's not an accelerating pattern, but there is a recovery over three months. Intermediate goods show a 0.1% increase in output over 12 months, rising to 1.7% annually over six months but then stepping back to a 1% growth rate over three months.

Manufacturing alone also shows accelerating growth as growth rates improve from 12 months to six months to three months. Real manufacturing orders have a convoluted growth rate, with positive growth over 12 months, a decline over six months, and then a small recovery over three months. The pace of real sales, as we saw in yesterday's durable goods orders and sales report, is on a shrinking path.

Industrial surveys generally show sequential deterioration for the sector from the ZEW and the IFO. The exception is the EU Commission industrial index that shows some slight improvement sequentially.

Industrial production results are presented for five other European countries that have issued IP data as of June. These data show acceleration sequentially in Spain, Sweden, and Norway. France and Portugal have complex patterns that end with negative three-month growth rates.

On balance, Germany shows some hopeful trends, with some rebound being led to some extent by the consumer sector. The survey data on industry are not encouraging. Although the picture for the rest of Europe shows some tendency for acceleration, there’s still a good deal of lingering weakness.