German producer prices drop the most in 13 months

Producer prices in Germany fell by 1.5 percent year-on-year in July 2025, after a 1.3 percent decline in June and surpassing market expectations of a 1.3 percent drop.

This was the fifth consecutive month of annual decreases and the steepest fall since June 2024, reinforcing the view that pipeline inflation pressures in Europe’s largest economy remain subdued.

The headline decline was once again driven primarily by energy prices, which were down 6.8 percent from a year earlier. Within the energy sector, the sharpest declines were recorded in natural gas (-8.6 percent), mineral oil products (-7.9 percent), electricity (-7.8 percent), heating oil (-5.7 percent), and motor fuels (-3.9 percent). The sustained downward trend in energy costs reflects both softer wholesale prices and weaker industrial demand amid sluggish economic growth.

Prices for intermediate goods also fell, down 0.9 percent, signaling easing cost pressures for manufacturers in areas such as chemicals and basic metals. However, upward price momentum persisted in categories tied more closely to consumer and investment demand. Non-durable consumer goods rose 3.5 percent, led by food and household items, durable consumer goods increased 1.9 percent, and capital goods were up 1.8 percent, pointing to resilience in sectors supported by domestic demand and export orders.

Excluding energy, producer prices climbed 1.0 percent year-on-year, following a 1.3 percent increase in June, showing that underlying cost pressures remain positive even as headline figures are pulled down by cheaper energy.

On a monthly basis, the producer price index unexpectedly declined by 0.1 percent in July, reversing a 0.1 percent gain in June and missing forecasts of a 0.1 percent rise. The surprise monthly dip underscores the fragility of industrial pricing power, especially in energy-intensive sectors.

The figures suggest that inflationary pressures at the wholesale level continue to ease, consistent with broader trends of weak industrial activity and muted demand across Europe. For the European Central Bank, this offers reassurance that disinflationary forces remain intact, even as headline consumer inflation has stabilized around the 2 percent target. For German manufacturers, however, falling producer prices may point to tighter margins, especially in industries where demand has not recovered enough to offset rising costs for labor and consumer-related goods.