Since Ethereum transitioned from proof-of-work to proof-of-stake in 2022, it has transformed into a deflationary asset. Currently, the total circulating supply of Ethereum (ETH) is 120,105,358 ETH, which is 415,680 ETH lower than the supply levels before The Merge.

However, in the past 30 days, Ethereum's supply dynamics have shifted. During this period, 35,548.72 ETH were burned, while 75,072.43 ETH were issued as block rewards to validators, resulting in a net supply increase of 39,523.71 ETH. Based on this supply change, Ethereum's current annualized inflation rate is approximately 0.4%, according to data from Ultrasound Money.

In comparison, Bitcoin's inflation rate stands at 1.068%. Before The Merge, Ethereum's Proof-of-Work inflation rate would have been significantly higher at 3.74%. If the current 30-day rate persists, projections indicate that around 433,000 ETH will be burned, and 914,000 ETH will be issued in the next year, resulting in a net gain of 481,000 ETH.

Data from OKLink reveals a decrease in ETH burned since March, with only around 900 ETH being burned daily since the beginning of May, the lowest average levels since The Merge.

The recent Dencun upgrade on the Ethereum network has decreased layer-2 transaction fees and overall network activity, leading to a lower burn rate and pushing Ethereum's supply back into an inflationary state.

Interestingly, Ethereum's inflation rate has become closer to that of Bitcoin, especially after Bitcoin's halving event last month. Over the past 7 days, Ethereum's inflation rate stands at 0.54%, just 0.29 percentage points higher than Bitcoin's post-halving rate of 0.83%.

While Ethereum's supply has become slightly inflationary in the short term due to reduced network activity and burn rate, its overall supply is still decreasing on a net basis, thanks to EIP-1559's burn mechanism for a portion of transaction fees.

Looking ahead, Ethereum's inflation rate and supply dynamics will likely be influenced by future network upgrades and adoption trends. If transaction fees and burn rate remain low, Ethereum may continue to experience inflationary pressure in the near term. However, the long-term trajectory will depend on the success of upcoming upgrades and the overall growth of the Ethereum ecosystem, especially with the adoption of layer-2 and layer-3 networks.