Germany’s annual inflation rate was confirmed at 2.2% in March 2025, slightly easing from 2.3% in February and marking the softest pace since last November.
German inflation rate confirmed at four-month low
The moderation in inflation was largely driven by a pronounced slowdown in services inflation, which decelerated to 3.5% from 3.8%, as well as a sharper decline in energy prices, which fell by 2.8% year-over-year compared to a 1.6% decrease in the previous month. The drop in energy costs was primarily due to falling prices for motor fuels, solid fuels, and heating oil, amid lower global energy demand and easing supply chain constraints.
Meanwhile, food inflation unexpectedly picked up, rising to 3.0% in March from 2.4% in February, reflecting higher prices for fresh produce, dairy products, and processed goods. This uptick could pose a challenge for consumers, especially lower-income households, despite the broader trend of disinflation in other components.
Core inflation figures
Core inflation, which excludes the often volatile categories of food and energy, also slowed to 2.6%, the lowest since June 2021. This decline in underlying inflationary pressure may offer some reassurance to policymakers at the European Central Bank, who have been closely monitoring core indicators as a guide for interest rate decisions. Analysts noted that the deceleration in services and core prices suggests that domestic price pressures may be gradually easing, though risks remain from wage-driven inflation and supply disruptions linked to ongoing global trade tensions.
On a monthly basis, consumer prices advanced by 0.3% in March, following a 0.4% rise in February, largely reflecting seasonal price increases in the travel and hospitality sectors during the early spring holiday period. The EU-harmonised index, which allows comparison across member states, also showed signs of easing inflation. It increased 2.3% year-on-year, down from 2.6% in February, while monthly harmonised consumer prices rose by 0.4%, slightly softer than February’s 0.5% gain.
Potential outlook
Looking ahead, the inflation outlook remains uncertain. While energy prices are expected to stay subdued, food price volatility and the potential pass-through of higher wages could keep inflation elevated in the coming months. Additionally, the impact of rising trade barriers between the U.S. and China—and possible ripple effects across global supply chains—could reintroduce cost pressures across imported goods.
Despite these challenges, the latest figures bolster expectations that the ECB may begin discussing the prospect of easing its restrictive monetary stance later in the year, particularly if inflation continues to trend downward and growth in the eurozone remains fragile. Markets will be closely watching Germany's April inflation print and forward-looking indicators such as producer prices and wage growth for further clues.
