Decrease in Inflation: Energy Prices Lower, Inflation Rate Now at 2.0 Percent - Decrease in Inflation Rates: Affordable Energy Contributes to 2.0 Percent Drop
In a recent economic forecast, it has been predicted that Germany's inflation rate for the full year 2025 will be slightly above the European Central Bank's (ECB) target of 2%. The German Federal Statistical Office reported that the inflation rate in June 2024 fell to 2.0%, marking a significant decline from the highs of 2022 when inflation averaged 6.9% following Russia's attack on Ukraine.
Despite the renewed decline, Commerzbank chief economist Jörg Krämer warns of high inflation risks, with "core inflation" (excluding energy and food) at 2.7% in June. The ECB, in its efforts to combat inflation, has cut the deposit rate for the eighth time since last summer, most recently to 2.0%.
The inflation trend in Germany is expected to remain stable around this level throughout 2025, with inflation pressures slightly exceeding the ECB’s 2% target due to factors such as interest rate cuts and a weaker euro. However, some easing is anticipated from subdued spending and a cooling labor market.
The trade dispute between the US and EU poses a risk to inflation in Germany, as tariffs on industrial goods could indirectly impact consumer prices. The conflict between Israel and Iran had little impact on the inflation rate in Germany.
Food prices increased by 2.0% in June, after a 2.8% increase in May. Inflation remains stubborn in services, with prices for services increasing by 3.3% in June. Cheaper energy contributed to the decline in the inflation rate, with energy prices being 3.5% lower than the previous year.
Economists, including the Council of Experts, predict a 2.0% inflation rate for the full year 2025 in Germany. The Bundesbank expects the inflation rate in Germany to fluctuate around 2.0% in the coming months, aligning with the ECB's target of price stability.
The current inflation forecast for Germany for the full year 2025 is slightly above 2%, with an expected annual average harmonized inflation rate around 2.1% to 2.4%. This projection suggests that inflation will remain marginally above the ECB’s target for the year.
In summary, Germany's inflation in 2025 is expected to be slightly above the ECB's 2% objective, with some risks upward due to wage growth and tariffs, while broader European projections align inflation at the target level overall.
The Community policy and employment policy of various organizations in Germany might need to address the inflation risks and potential wage growth in response to the slightly elevated inflation rate expected in 2025. The finance sector could also be impacted by these inflationary pressures, as economic forecasts project a marginally higher inflation rate than the European Central Bank's target.
