Stable 2.0% Inflation Rate Persists
The European Central Bank (ECB) has taken an observer role after seven consecutive rate cuts, signalling a pause in monetary policy adjustments. This comes as the inflation rate in Germany has stabilized around 2% in mid-2025, following the high inflation waves of recent years.
According to the Federal Statistical Office, consumer prices remained unchanged at 2.0% year-on-year in July. The annual inflation rate held steady at 2%, unchanged from June and slightly above market expectations of 1.9%. Core inflation (excluding food and energy) remained relatively stable, with a core inflation rate of 2.7% annually in June and July.
Energy prices have been declining year-on-year, with a decrease of around -3.4% in July. Food prices rose modestly, about 2.2%, and service price inflation remained elevated, averaging 3.1%. This balance has contributed to the overall steady headline inflation.
The ECB's target of inflation "below but close to 2%" aligns with the current trend, suggesting that inflation is likely to remain around 2% through the rest of 2025. No explicit numeric forecast for late 2025 inflation beyond July is detailed in the sources, but the steady recent trend and ECB’s policy stance suggest otherwise.
Eurostat confirms that inflation across the euro area was also around 2% in June 2025, further supporting the outlook for Germany’s inflation rate staying controlled in the near term.
Controversies between advocates and opponents of a further easing of monetary policy are expected for the fall. The Bundesbank expects the inflation rate in Germany to fluctuate around the two-percent mark in the coming months.
ING economist Carsten Breszki expects less inflationary pressure in the coming months due to the tense labor market situation. However, lower price increases could hinder economic growth, as private individuals and companies might postpone their investments in anticipation of even lower prices.
The high core inflation rate, despite showing some signs of easing, is still a concern for economists like Commerzbank chief economist Jörg Krämer, who describes it as a "blemish" because it represents an inflation risk in an improving economy.
Global corporations might try to enforce higher prices in Europe to offset their losses in the USA. Breszki believes that prices for certain products in the Eurozone could fall if they sell worse in the USA.
The potential impacts of the future trade agreement with the USA are still unclear. The high inflation wave of recent years has now run its course, according to Deka chief economist Ulrich Kater. The key interest rate remains unchanged at 2.0% following the ECB's latest meeting last week.
The ECB sees its price stability target met with an inflation rate of 2.0%. In 2022, inflation in Germany soared to 6.9%, and in 2023, it was 5.9%. However, last year, inflation eased to 2.2 percent. The key challenge now is to maintain this stability while fostering economic growth.
Private households are still adjusting to the increased price level, but wages have also caught up, resulting in the topic of inflation gradually fading from consumers' minds. The Council of Experts ("Five Wise Men") expects a value around two percent for the annual average 2025 as well.
In conclusion, Germany's inflation rate has stabilized around 2% in mid-2025, providing a more stable economic outlook. However, the ECB and economists remain vigilant, ready to react if necessary to maintain price stability while promoting economic growth.
The European Central Bank (ECB) might consider intervening in the service sector to ensure price stability, given the elevated service price inflation. To maintain economic growth, financial institutions may need to provide affordable credit services to businesses and individuals, as lower price increases could discourage investment.
