Persisting Inflation Rate Holds Steady at 2.0 Percent - Stable Inflation Rate Holds at 2.0%
In a significant development, inflation in Germany has eased to 2.0% in June and July 2025, reaching the European Central Bank's (ECB) medium-term target for the first time since late 2024. This moderation in inflation is a positive sign for the economy, particularly in the services and food sectors.
The overall inflation rate stands at 2.0%, while core inflation, which excludes food and energy, is at 2.7%. Service inflation has moderated to around 3.3%, and food prices have increased by about 2.0% compared to the previous year. Energy prices, on the other hand, have continued their downward trend, declining by approximately 3.5% year-on-year.
The ifo Institute's barometer suggests a slight increase in companies expecting to raise prices, especially in industry and wholesale sectors, while retailers and service providers are less inclined to do so. This moderation in inflation is a welcome relief, as it suggests that inflationary pressures are stabilizing near the target.
The ECB is closely monitoring these developments. The easing of inflation reduces the urgency for aggressive rate hikes. However, the persistence of core inflation above 2% and service sector inflation around 3.3% indicates some underlying price pressures remain. As a result, the ECB might maintain a careful and data-dependent approach to future policy.
Jörg Krämer, chief economist at Commerzbank, describes the higher core inflation rate as a "blemish" because it represents an inflation risk in a recovering economy. Ulrich Kater, chief economist at Deka, believes that the high inflation wave of recent years has now run its course.
The current outlook on inflation in Germany is encouraging, but it is crucial to remain vigilant. The ECB will continue to monitor inflation developments closely, particularly in the services and food sectors, to ensure that inflation remains within the target range.
| Inflation Aspect | Current Rate (2025) | |-----------------------|---------------------| | Overall Inflation | 2.0% | | Core Inflation (excl. food & energy) | 2.7% | | Service Inflation | ~3.3% | | Food Inflation | +2.0% | | Energy Prices | -3.5% |
[1] Destatis (2025). Inflation in Germany. [Online]. Available: https://www.destatis.de/EN/Themes/National-Economy-Environment/Prices-and-Costs/Inflation/Inflation-in-Germany.html
[2] European Central Bank (2025). Monthly Bulletin - July 2025. [Online]. Available: https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp2549.en.pdf
[3] Commerzbank Research (2025). German Inflation Update - July 2025. [Online]. Available: https://www.commerzbank.com/en/institutional-clients/research/research-articles/german-inflation-update-july-2025-20250729.html
[4] Deka Institut (2025). German Inflation Outlook - July 2025. [Online]. Available: https://www.deka.de/deka-institut/aktuelle-studien/inflations-ausblick-deutschland-juli-2025-20250729.html
In light of the easing inflation, EC countries might revise their employment policies, focusing on strategies that promote sustainable growth and prevent potential inflationary pressures. Furthermore, with the European Central Bank (ECB) maintaining a vigilant stance on inflation, finance ministries in EC countries could collaborate to address long-term challenges associated with high core inflation and service sector inflation.
The ECB's careful and data-dependent approach to future policy will be instrumental in shaping the direction of employment policy within EC countries, as they seek to minimize inflationary risks while fostering economic stability and job creation.
