German producer prices fall the most in nine months

Producer prices in Germany fell by 1.3% year-on-year in June 2025, following a 1.2% decline in May, in line with market expectations. This marked the fourth consecutive month of annual declines and the steepest drop since September 2024, underscoring the ongoing disinflationary trend in Europe’s largest economy.

The decrease continues to reflect waning cost pressures across several industrial inputs, offering some relief to businesses grappling with slowing demand and tighter financial conditions.

The primary driver of the decline remained energy prices, which plunged 6.4% year-on-year. Within the energy category, notable declines were observed in electricity (-8.8%), mineral oil products (-7.7%), natural gas (-6.9%), heating oil (-6.4%), and motor fuels (-4.2%). The persistent drop in energy prices reflects both base effects and broader easing in global commodity markets, alongside milder seasonal demand and improved supply dynamics.

In addition to energy, prices for intermediate goods—which include essential components for manufacturing like metals, chemicals, and plastics—declined by 0.4%. This suggests that upstream cost pressures on German industry continue to fade, a development that could support margins in manufacturing and export-driven sectors, albeit amid weaker overall global demand.

Conversely, some price pressures persisted in consumer and investment-related goods. Prices for non-durable consumer goods, such as food and cleaning products, rose 3.6%, while durable consumer goods, including appliances and electronics, increased by 1.7%. Capital goods—machinery and equipment used in production—also saw prices rise by 1.7%, indicating continued cost pass-through in more stable and demand-insensitive segments of the economy.

Excluding the volatile energy component, producer prices rose by 1.3% in June compared to the same month last year, matching May’s increase. This points to underlying resilience in certain sectors, even as headline figures suggest broad-based disinflation.

On a month-over-month basis, the producer price index edged up by 0.1% in June, slightly exceeding market forecasts for no change and rebounding from a 0.2% drop in May. This marked the first monthly increase in seven months, signaling a potential turning point or stabilization in input costs after a sustained decline. Whether this marks the start of a new trend or just a temporary uptick will depend on energy markets and global industrial demand in the second half of the year.

Overall, the data supports the view that inflationary pressures in Germany’s industrial sector continue to ease, reducing pressure on the European Central Bank to maintain a hawkish stance. However, the divergence between falling energy costs and still-elevated prices in consumer goods suggests that disinflation may remain uneven and gradual.