Germany inflation rate steady at 2%

Germany’s annual inflation rate remained unchanged at 2.0% in July 2025, according to preliminary estimates from the Federal Statistical Office, holding steady for the second consecutive month and slightly exceeding market expectations of a modest slowdown to 1.9%.

The data suggests that while inflationary pressures in Europe’s largest economy are largely under control, certain underlying components are still exerting upward influence on consumer prices.

One of the primary drivers behind the steady headline rate was a sharper uptick in food prices, which rose by 2.2% year-over-year in July, compared to 2.0% in the previous month. The increase was led by higher costs for fresh produce, dairy, and processed food products, reflecting both seasonal factors and lingering supply chain disruptions in parts of the agricultural sector.

Meanwhile, energy prices—previously a major contributor to overall disinflation—declined by 3.4%, a slightly smaller drop than the 3.5% recorded in June, suggesting a moderation in the pace of energy deflation.

Offsetting these gains was a noticeable deceleration in service sector inflation. Prices for services rose by just 3.1% year-over-year, marking the slowest increase in three years and down from 3.3% in June. This decline points to easing wage pressures and a cooling of demand in discretionary service categories such as tourism, hospitality, and personal care, despite the summer travel season.

On a monthly basis, Germany’s Consumer Price Index (CPI) rose by 0.3% in July, rebounding from a flat reading in June and surpassing consensus expectations of a 0.2% rise. This rebound was partly driven by seasonal increases in food and travel-related costs.

Using the EU-harmonised index (HICP)—the preferred metric for cross-country comparison within the Eurozone—the annual inflation rate actually declined to 1.8% in July from 2.0% in June, dipping below both the German national rate and market expectations of 1.9%. However, on a monthly basis, the HICP rose by 0.4%, a significant acceleration from the 0.1% increase in June and matching forecasts.

The divergence between national and harmonised inflation measures highlights the complexity of interpreting price dynamics in the current environment. While headline inflation remains near the European Central Bank's target, the mixed signals across different components suggest that policymakers may continue to monitor inflation developments closely before making any further changes to interest rates.