Consumer Prices in Germany Rise by 2.0% in July

In Germany, the consumer price index saw a steady increase of 2.0% in July, mirroring the rise observed in June. Economists suggest that the wave of inflation experienced in recent years may have subsided. However, the latest figures reveal a notable caveat.

The Federal Statistical Office has confirmed preliminary calculations indicating that, on average, consumer prices have increased by 2.0% compared to the same month last year. From June to July, prices rose by 0.3%. Ruth Brand, the president of the Federal Statistical Office, noted that the inflation rate has stabilized since the beginning of the year, remaining unchanged for two consecutive months. Experts believe that the inflation peak, which reached nearly 9% in previous years, has passed.

Despite this stabilization, the core inflation rate--which excludes volatile food and energy prices--remains elevated at 2.7%. This indicates that everyday expenses continue to rise for consumers. The price hikes for food in July were particularly significant, with an average increase of 2.2% compared to the previous year. Specific categories saw even sharper increases: fruit prices surged by 7.6%, sugar and confectionery rose by 5.6%, and dairy products and eggs increased by 4.1%. Notably, chocolate prices soared by 18.6%, while vegetable prices decreased by 3.2%, and potato prices fell by 16.1% compared to July 2024.

On the energy front, prices were down by 3.4% year-on-year in July, contributing to easing inflation. However, the year-on-year price drop in energy was less pronounced than in previous months. Over the past year, fuel prices decreased by 4.5%, while heating fuels like heating oil and wood pellets fell by 5.0% and 5.3%, respectively. Electricity prices were also 2.0% lower than the previous year.

Service prices continued to rise at an above-average rate, driven by increased labor costs. In July, the cost of services was up by 3.1% compared to a year earlier. Although this rate of increase has softened from 4.0% at the beginning of the year, it remains a significant factor in overall inflation.

Looking ahead, economists project an average inflation rate of around 2.0% for Germany in 2025. The European Central Bank (ECB) considers a 2.0% inflation rate as fulfilling its target for price stability and a stable currency across the eurozone. Sustained low prices, alongside excessively rising prices, pose risks to the economy, as both businesses and consumers may delay investments in anticipation of further price drops.

Inflation in Germany saw a sharp rise to 6.9% in 2022 and a subsequent decrease to 5.9% in 2023, influenced heavily by the energy and food price spikes following the Russian invasion of Ukraine in February 2022. The inflation rate fell to 2.2% in the previous year, reflecting a shift in economic conditions. Higher inflation reduces the purchasing power of consumers, raising concerns about potential long-term economic impacts.