Global inflation risks are climbing even as the energy shock stays contained, according to Prometeia’s Quarterly Economic Outlook for July 2026, which also flags a looming test for Italy once EU recovery funds run dry.
The fragile memorandum of understanding between the US and Iran has calmed energy markets, Prometeia notes. Oil prices have retreated from their March peak, traffic through the Strait of Hormuz has restarted at a reduced pace, and production damage has proved milder than feared. Several Middle Eastern states have also unveiled fresh pipeline investment to bypass the Strait. Even so, the geopolitical risk premium remains high: Prometeia’s scenario sees Brent staying above January-February levels through late 2026 before settling at $80 to $85 a barrel over three years.
China remains a defining force in the global picture. Weak domestic demand, a slumping property sector and persistent overcapacity have pushed Chinese firms to cut export prices, effectively exporting deflation. The effect has been uneven.
In the US, tariffs, supply shocks and an AI investment boom have lifted activity and inflation alike, with May headline inflation exceeding the euro area’s despite American energy self-sufficiency. In the euro area, cheaper Chinese goods have offset energy-driven price pressure, helping area-wide inflation ease to 2.8% in June, with core at 2.2%.
That cushion is set to fade. Prometeia expects rising Chinese import prices, a stronger yuan and margin rebuilding to erode the moderating effect, leaving eurozone inflation stuck near 4% between late 2026 and early 2027 rather than converging to target. Central banks are staying cautious: the US is holding off further cuts, while the eurozone could hike by 25 basis points in September.
Italy, meanwhile, is outperforming expectations. Prometeia has upgraded 2026 growth to 0.7% from 0.4%, driven by recovering consumption, the unlocking of Transizione 5.0 tax credits, peak NRRP spending and volatile but positive exports. GDP rose 0.3% quarter-on-quarter for a second straight quarter, though indicators point to stagnation in Q2. Inflation is forecast to top 4% by year-end, averaging 3.1% for 2026.
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