German producer prices fall for first time in five months

Producer prices in Germany unexpectedly dropped by 0.2% year-on-year in March 2025, reversing a 0.7% increase in February and missing market forecasts of a 0.4% gain. It marked the first annual decline in producer prices since October 2024, reflecting a cooling trend in upstream inflationary pressures across the economy.

German producer prices fall for first time in five months

The decline was largely attributed to a sharp drop in energy prices, which fell by 3.6% compared to the previous year. Within the energy segment, electricity prices decreased by 4.3%, natural gas prices dropped 3.6%, and district heating costs declined by 1.9%, highlighting the impact of milder winter conditions and improved energy supply stability across Europe. By contrast, price increases were seen across several key categories. Prices for non-durable consumer goods rose by 2.6%, driven by higher costs for food and beverage products. Durable consumer goods also registered a 1.3% increase, reflecting steady consumer demand despite broader economic uncertainties. Additionally, capital goods prices advanced by 1.9%, supported by solid gains in machinery (+2.0%) and motor vehicles, trailers, and semi-trailers (+1.4%), suggesting that investment demand within the manufacturing sector remained resilient. Intermediate goods prices also edged up by 0.5%, pointing to some lingering cost pressures in industrial supply chains.

PPI core figures

Excluding energy, producer prices climbed by 1.4% year-on-year, indicating that core inflationary pressures remain somewhat persistent even as headline numbers ease. On a monthly basis, the PPI fell by 0.7%, marking the fourth consecutive month of decline and the steepest monthly drop since December 2023. This followed a 0.2% decrease in February and missed market expectations of only a 0.1% fall, underscoring the volatility in producer-level price dynamics. The broader trend of easing producer prices could provide some relief to businesses grappling with margin pressures over the past two years and might eventually feed into lower consumer inflation over time. However, the persistence of core price increases in consumer and capital goods sectors suggests that underlying inflation risks have not been fully extinguished. Analysts note that the latest PPI figures could influence expectations for European Central Bank policy, particularly as the ECB weighs further rate cuts amid signs of softening inflation across the Eurozone’s largest economy.