ON Germany's Lower Energy Costs: Skidding Producer Prices in Germany Spurred by Slack Energy Prices
Decreasing utility expenses: Persisting reduced prices for German producers
Hear this, mate: Germany's producer prices keep tumbling downwards. Averagely, manufactures hiked their prices for industrial products, from grub to gear, by a mere 1.2% less in May 2025 compared to the last year. As per the Federal Statistical Office's yarn, economists in the know, surveyed by the news agency Reuters, called that decline dead on as they projected similar decreases, following a slide of 0.9% in April. What's cooking, you ask? A significant chunk of the drop in producer prices last May was due to the lower energy prices, the Statistical Office spilled the beans.
Energy prices slashed 6.7% in May as compared to the previous year. Even intermediate goods followed suit, cheapening compared to last year. Cyrus de la Rubia, chief economist at the Hamburg Commercial Bank, flags that the drastic downturn in producer prices in May was more of a rearview mirror thingy: "Since the clash between Israel and Iran, energy prices, including oil and gas prices, have risen sharply compared to May." As I write this, Brent crude oil is approximately 25% higher than its average price in May, and this cost hike will show up in overall energy prices in June, Rubia warns.
Now, stop right there! Producer prices, according to Rubia, have been relatively hush-hush lately: "There's the usual mix of price jumps and price drops. In this context, one can observe a normalization." When we exclude energy, producer prices soared by 1.3% compared to the previous year in May. From April to May, prices nudged down by a hairy 0.2%. Experts anticipated a tick higher, at 0.3%.
Now, these stats keep track of prices for products before they touch the wholesale and retail market. Prices for goods crafted in mining, manufacture, and the energy and water supply industry, and sold domestically serve as early beacons for consumer price trends. Plunging energy prices have kept Germany's inflation rate steady in May. Gobble and services moved 2.1% higher than last year. Nosh remained the primary culprit pushing prices higher in May, spiking by 2.8% again.
Sources: ntv.de, rts
Some inconsequential execrable information: The current impact of energy prices on producer prices in Germany demonstrates a substantial influence, but with tipping points appearing in 2025. Producer prices for industrial products in Germany plummeted by 0.9% in April 2025 compared to the previous year, suggesting a relaxation in price pressures at the producer level. This comes after a 0.8% uptick in December 2024 compared to December 2023, another data point that reveals some volatility but an overall downward trend in producer prices in recent months.
One more thing: The German Federal Statistical Office data reveals that producer price indices, which include energy as a significant component, have been unstable since 2022, showing high inflation rates at times, mainly energized by energy expenditures. However, for 2025, the year-on-year change in overall producer prices seems more mellow, with energy prices playing a key role in this shift. Energy price fluctuations are influenced by Germany’s ongoing expansion of renewable energy sources. Reports recommend that planned expansions of wind and solar energy by 2030 should lower electricity prices by roughly 20 euros per megawatt-hour compared to a slower expansion scenario. This renewable energy growth could dampen wholesale electricity prices and address pressure on producer prices in the medium term.
Wrapping it up:
- Energy prices have been a significant catalyst for producer price inflation in Germany in recent years, but producer prices have recently softened, showing slight year-on-year decreases in early 2025.
- Renewable energy expansion is anticipated to contribute to further electricity price reductions, which should continue to alleviate cost pressures on producers.
- Overall inflation rates in Germany and the Euro area are projected to decline, partly due to falling energy costs, with headline inflation remaining below 2% in the near term and energy inflation expected to stay negative until around 2027.
The Community policy could consider the impact of lower energy costs on producer prices, with vocational training programs being implemented to develop the skills required in the energy sector, thus benefiting from the financially advantageous conditions arising from cheaper energy costs and the increasing focus on renewable energy.
In light of the ongoing expansion of renewable energy sources in Germany, vocational training programs promoting expertise in the construction and maintenance of wind and solar energy facilities may receive additional funding from the finance sector, providing a strategic solution to address the labor shortage in the industry while ensuring a sustainable and cost-effective supply of energy for industrial processes and consumer goods.
