Persistent inflation sustains at 2.1% rate

Persistent inflation sustains at 2.1% rate

Germany's Inflation Rate Remains Steady at 2.1%

Wiesbaden - Consumer prices in Germany have remained constant at 2.1% in May, according to preliminary data from the Federal Statistical Office. This rate matches the figure recorded in April.

Food prices have experienced a disproportionate increase, while consumers benefited from a decrease in energy costs compared to the previous year. Energy prices fell by 4.6% in May, a decline from 5.4% in April. The German government's announcement to reduce electricity tax is expected to provide additional relief.

Declining energy prices have been influenced by ongoing concerns about the global economy amid the trade dispute with the USA. Consequently, fuel prices in Germany saw their lowest point this year at the beginning of May. However, prices for Super E10 gasoline and diesel rose marginally from mid-May, as per the ADAC price comparison.

Meanwhile, food prices also showed a disproportionate rise in May, by 2.8%, similar to the increase in April. Higher wage costs for services, which encompasses restaurant visits, package holidays, and car repairs, continue to drive prices up. In May, prices for services were 3.4% higher than in the previous year, after 3.9% in April.

Commerzbank's chief economist, Jörg Krämer, highlights the persisting issue of high core inflation. He said, "Without the volatile energy and food prices, the inflation rate would still be a clear 2.8% above the ECB's target of 2%. Inflation is persistent."

Overall consumer prices increased by 0.1% from April to May, according to the Federal Office's preliminary calculations. In the euro area, inflation has been stable at 2.2% based on Eurostat data for April.

Owing to these recent inflation developments, economists anticipate the European Central Bank (ECB) to decide on another interest rate cut next Thursday (5 June). This would be the eighth interest rate cut since summer 2024, potentially lowering the deposit rate relevant for savers and banks from 2.25% to 2.0%.

Lower interest rates usually lead to cheaper loans, stimulating the economy. However, savers may expect further deterioration in interest rates on daily and fixed-term deposit offers.

The course of trade disputes with the US will also impact Germany's prices for goods and services in the upcoming months. The Bundesbank expects the inflation rate in Germany to hover around the 2% mark in the coming months. Various forecasts predict an average annual rate of around 2% for the entirety of 2025. In 2024, Germany's inflation rate averaged 2.2%.

[Enrichment Data Integration] The projected inflation rate for Germany for the rest of 2025 is expected to moderate and remain around 2.1% to 2.4%, indicative of a trend of disinflation influenced by easing energy prices and more modest food price increases. The European Commission's spring 2025 forecast supports this projection, expecting German HICP inflation to decelerate from 2.5% in 2024 to 2.4% in 2025 and further to 1.9% in 2026, supported by strong declines in energy wholesale prices. Energy prices have been a significant factor in the inflation trend, with recent months showing a steep fall in energy prices, including motor fuels, heating oil, and solid fuels, which has moderated goods inflation to just 0.5% year-over-year by April 2025. Food price increases have also softened slightly compared to previous months, contributing to the easing inflation pressures. Core inflation, excluding food and energy, remains more resilient at around 2.8% year-on-year, reflecting underlying inflationary pressures, especially in services. In summary, given the current trends of easing energy costs and moderated food price growth, Germany's inflation rate for the remainder of 2025 is projected to stabilize around 2.1% to 2.4%, matching the ECB's inflation target range and indicating a continuation of disinflationary trends in the economy.

1. The steady inflation rate in Germany may impact various sectors, such as the finance industry, where investments in businesses like food-and-drink companies might be influenced by the cost of raw materials.
2. Wealth-management firms are closely monitoring the inflation trends, as they may alter strategies for personal-finance planning, considering the potential impact on consumers' disposable income and spending habits.
3. The energy sector in Germany could witness shifts in the business landscape due to the steady inflow of competitive pricing, which may encourage new investments in renewable energy sources.
4. With the anticipated decline in energy prices and stable inflation rate, lifestyle changes might become more affordable for many households, allowing them to allocate funds towards discretionary spending in areas such as travel and dining out.
5. The economic environment characterized by steady inflation and declining energy costs could spur growth in industries like hospitality and leisure, where businesses focusing on food-and-drink services might anticipate an uptick in both domestic and international tourism.

Read also: