Seasonal tug-of-war between airfares and summer sales

Transport was the main upward-pushing item in the July measurement. Airfares rose 15% month-on-month (0.48% CPI effect), taking the lead among items weighing in on the upside. This is typical of the seasonal swing that characterises July, when tourism peaks. Petrol prices fell by 3.6% between months (-0.10%), as global market prices dropped following the June ceasefire in the Middle East and were still low when SI carried out its measurements in the first half of July. That situation has changed, however: peace negotiations between the US and Iran failed, and the price of both crude oil and oil products have soared once again.

Summer sales made their mark on the July measurement, as they usually do, blunting the CPI increase. Clothing and footwear prices fell by 4.7% (-0.16%), and the price of furnishings and household equipment fell 2.4% (-0.09%). The scope of the sales is similar to that in recent summers. Sale effects generally reverse in August and September, and we think they will do so this year as well.

Imputed rent still a major contributor to inflation

The housing component weighs second-heaviest in the July rise in the CPI. Imputed rent rose 0.6% MoM (0.12%), accounting for most of the increase in the housing component. The July increase was similar to that seen in recent months. In 2026 to date, imputed rent has risen by 3.4%, while the HMS rent price index climbed 3.9% in the first six months of the year. It should be noted, though, that the rent price index fluctuates more widely between months, and the increase in 2026 to date is partly a rebound from the decline in late 2025.

Food prices were flat between months (0% CPI effect), somewhat below our forecast. The main difference between the measurement and the forecast stemmed from dairy and meat prices, which fell marginally after rising in the past few months. Restaurants and accommodation services rose in price by 1.1% (0.06%), led by accommodation, which jumped 5.3% due to strong peak season demand.

Composition of inflation

Developments in the composition of inflation can be seen in the chart below. Of the 5.3% inflation measured in July, the contribution from the housing component remains strongest, at 1.6%, and has been stable in recent months. The second-largest contributor is public services, at 1.3%. This item, too, has kept a stable pace in recent months, after surging when the per-kilometre charge for motor vehicle use was adopted and included under public services at the start of 2026. Other services account for 1%of inflation and tourism another 0.7%. The contribution from tourism has increased steadily this year, in line with rising airfares and accommodation prices.

Domestic goods account for 0.6%, while imported goods reduce inflation by 0.4%. The contribution from imported goods is still negative and has become more strongly so in the past three months. This reflects, among other things, the recent drop in global oil prices and the effects of summer sales on clothing and housewares, but conditions abroad have changed recently, and uncertainty remains. Furthermore, the cancellation of petrol and diesel oil fees at the turn of the year had a downward impact similar to the above-mentioned upward impact on public services.

The inflation outlook further ahead

• August: CPI to rise 0.05% (twelve-month inflation 5.4%) – End-of-sale effects push upwards; lower airfares pull downwards.
• September: CPI to rise 0.2% (twelve-month inflation 5.6%) – temporary Government measures will expire and value-added tax on petrol will rise. The increase in standard fees for healthcare centre visits will push upwards as well. This will be offset by a drop in airfares.
• October: CPI to rise 0.25% (twelve-month inflation 5.3%) – seasonal effects taper off, and most items rise marginally.

If our preliminary forecast materialises, headline inflation will measure 5.4% in August, thereby exceeding the 4.7% wage contract review threshold by a wide margin. Higher twelve-month inflation in August and September despite modest monthly rises stems mainly from base effects, as the CPI fell in August 2025 and rose only incrementally in September The temporary measures introduced by the Government will expire this September, thereby nudging the CPI higher.

Underlying inflation according to core indices rose in July, suggesting persistent underlying inflationary pressures. We assume that imported inflationary pressures will continue in the months ahead, owing to circumstances abroad, although it is still highly uncertain how the conflict in the Persian Gulf will play out.

The Central Bank Monetary Policy Committee’s (MPC) next policy rate decision will be announced on 19 August, and July inflation data will be the most recent available to the Committee when it meets next month. Even though the economy has cooled, inflation is still entrenched and inflation expectations remain high. We think it likely that the MPC will raise interest rates at its next meeting, as we projected in our most recent macroeconomic forecast.