Anticipated inflation rate for June at 2.0% - Anticipated June inflation rate at 2%.
Germany's inflation trend is expected to continue its downward trajectory, with rates predicted to drop below 2% again in the coming months. This prediction is based on several key factors that are contributing to the disinflation process.
One of the major contributors is the significant decline in energy prices. In April 2025, energy prices decreased by 5.4%, and this trend continued in June 2025, with an average decrease of 3.5% compared to June 2024. This fall in energy commodity prices has been a major factor in reducing overall inflationary pressures, particularly in 2024 and beyond.
Another significant factor is the stronger euro exchange rate. A stronger euro lowers import prices for Germany, making imported goods cheaper. This, in turn, helps to reduce inflation.
The increased supply of goods from Asia is also playing a role. With Asian goods no longer redirected to the US market, there is greater availability of products in Europe, relieving supply bottlenecks and easing price tensions.
Weak consumer demand is another factor exerting downward pressure on prices. Retail sales in Germany have been declining, with a 1.6% drop in May 2025.
Monetary policy developments have also contributed to the trend. The European Central Bank (ECB) recently cut interest rates but signaled a pause in easing as inflation has returned near its 2% target, suggesting stabilization of inflation expectations.
The Bundesbank forecasts inflation to temporarily fall to about 1.5% in 2026 largely due to energy price effects, before a slight increase later. Economic growth is subdued due to uncertainties like US tariffs weighing on industrial activity, which also reduces demand-pull inflation.
However, the inflation trend in the coming months will be influenced by several factors, including developments in energy prices, global supply chains, labor costs, and water levels on major German rivers. Carsten Brzeski, an analyst at ING, predicts that German inflation is likely to continue its downward trend and could fall below 2% in the coming months.
Michael Holstein, the chief economist of DZ Bank, agrees that energy prices will be crucial but does not expect inflation rates significantly below 2% in the near future due to various factors, including the volatility of oil prices and potential increases in transportation costs due to declining water levels on major rivers.
The prices for services had a strong inflationary effect, with an increase of 3.3% in June 2025. Food prices rose significantly less in June 2025, with an inflation rate of 2.0%. Despite this, food prices in May 2025 had increased by 2.8% compared to the previous year.
In conclusion, the ongoing disinflation process in Germany is largely dependent on oil prices and other factors like the euro exchange rate, supply chains, consumer demand, and monetary policy. While inflation rates are expected to drop below 2% again in the coming months, they are not expected to stay significantly below this level due to various factors.
- The European Central Bank's (ECB) recent interest rate cut and the pause in easing, as inflation has returned near its 2% target, indicates a stabilization of inflation expectations among EC countries, which could contribute to the ongoing employment policy reforms.
- The decline in energy prices, stronger euro exchange rate, increased supply of goods from Asia, and weak consumer demand are all factors that are not only contributing to the disinflation process in Germany, but they may also influence the employment policy by affecting business operations and productivity levels in various industries.
