Germany Inflation Holds at 2% in July 2025 Despite Market Expectations of a Slowdown

📌 Key Highlights

• Annual inflation remained at 2.0%, slightly above expectations of 1.9%
• Food prices rose more sharply (2.2% vs 2.0% in June)
• Energy prices fell less than before (-3.4% vs -3.5%)
• Service inflation eased to 3.1%, the lowest in 3 years
• Monthly CPI rose 0.3%, beating June’s flat figure and forecast of 0.2%
• EU-harmonised inflation dipped to 1.8% from 2.0%

📉 Inflation Holds Firm in July

Germany’s annual consumer inflation rate stayed unchanged at 2.0% in July 2025, defying market forecasts of a modest slowdown to 1.9%, according to preliminary figures from Destatis.

This marks the second consecutive month inflation met the European Central Bank’s 2% target, suggesting price pressures are stabilizing but not easing as quickly as expected.

Food Prices Up, Services Cooling

The steady headline rate was largely due to diverging trends in key components:

• Food prices accelerated to 2.2% year-on-year, up from 2.0%
• Energy prices continued to decline (-3.4%) but at a slightly slower pace than June (-3.5%)
• Service inflation eased further to 3.1%, its lowest since 2022, down from 3.3% in June

These shifts offset each other, leaving the overall CPI unchanged on a yearly basis.

🔄 Monthly Price Pressures Rebound

On a month-over-month basis, consumer prices rose 0.3% in July, bouncing back from a flat reading in June and beating analyst forecasts of 0.2%.

This upward movement suggests ongoing short-term pressures, possibly due to seasonal spending or delayed price adjustments in key categories.

Read More: Rising Ifo Business Confidence Index in Germany

EU-Harmonised Index Tells a Slightly Different Story

Using the EU-harmonised index of consumer prices (HICP):

• Annual inflation fell to 1.8%, slightly below forecasts (1.9%)
• Monthly HICP rose 0.4%, matching expectations and above June’s 0.1%

This divergence suggests Germany’s domestic price stability may look different when viewed through the lens of pan-European inflation monitoring.

📊 Summary Table – Inflation Components

Outlook

With inflation hovering near the ECB’s target, analysts expect the European Central Bank to maintain its current policy stance. However, continued strength in food prices and monthly gains raise concerns about how sticky inflation may be in the second half of the year.

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