Drop in Energy Costs: German Manufacturers Shed 1.2% From Producer Prices in May
Decreasing energy expenses: Persistently dropping producer prices in Germany
Hey there! Let's talk about the latest figures on producer prices in Germany. Manufacturers of goods across various sectors, including food and industrial products, slashed their prices by an average of 1.2% in May compared to the same time last year, according to the Federal Statistical Office. The decline came as anticipated by economists surveyed by Reuters, following a 0.9% decrease in April.
The primary contributor to this price decrease was the fall in energy costs, which dipped 6.7% from the previous year, as stated by Destatis. Energy prices sank to new lows in May 2025 – electricity dropped by 8.1%, natural gas plummeted by 7.1%, and mineral oil products dropped an impressive 9.6%.
Economist Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank, explains that the considerable drop in producer prices in May largely reflects past trends: "The ongoing conflict between Israel and Iran has caused energy prices, particularly oil and gas prices, to surge compared to May. As a result, the current Brent crude oil price is around 25% higher than its average price in May."
Overall, manufacturer prices have remained relatively stable. Though there's a usual mix of price increases and decreases, as described by the expert, the trend indicates a return to normality. Capital and consumer goods experienced price increases in May compared to the previous year. Despite the overall 0.2% fall in prices from April to May, experts had anticipated a 0.3% decrease.
The recorded prices for manufacturers' products do not include taxes or costs incurred in the wholesale and retail trade. Instead, they provide crucial early indicators for the development of consumer prices. Lower energy prices have kept inflation in Germany steady in May, with goods and services costing 2.1% more than the previous year. Food prices, a key driver of inflation, increased by 2.8% once more.
Sources: ntv.de, rts
Insight:
- The decrease in producer prices was primarily due to lower energy costs across various sectors, with electricity, natural gas, and mineral oil product prices showing significant reductions.
- Energy prices have risen sharply since May due to the ongoing conflict between Israel and Iran, which may impact overall energy prices in June and consumer prices in the coming months.
- Excluding energy costs, producer prices increased slightly, albeit with a slight easing compared to the previous month's rise.
In light of the falling energy costs, the German government may consider adjusting its community policy to accommodate the benefits gained from lower manufacturing costs, particularly in sectors like vocational training. This could lead to a more skilled workforce that aligns with the needs of the industry, fostering economic growth and financial stability.
While the current decline in energy costs has kept inflation steady, it is crucial for manufacturers to explore alternative energy sources, as the ongoing conflict between Israel and Iran may cause energy prices to surge in the future, impacting the overall cost of industrial vocational training.
