Decrease in Inflation to 2.0% - Affairs of Energy Leading to Lower Costs
In a significant development for the German economy, the inflation rate for the year 2025 is expected to hover around 2.0%, according to various economic forecasts. This prediction, which aligns with the German and Eurozone target of around 2%, marks a gradual normalization of inflation following recent volatility, as reported by Trading Economics, the Federal Statistical Office, and the Bundesbank.
The inflation rate in Germany decreased to 2.0% in June 2025, a level last seen in October 2024. This decline was primarily due to cheaper energy prices, which fell by 3.5% in June, according to the Federal Statistical Office in Wiesbaden. Conversely, prices for services, including insurance, package tours, and car repairs, rose by 3.3%.
Despite the moderate inflation rate, consumers in Germany are feeling the pinch of increased prices, particularly for everyday items like butter, chocolate, fruit, and vegetables. This sentiment was echoed by Ulrich Kater, chief economist at Deka, who stated, "interests have fallen, and the acute inflation threat is over."
Looking back at 2024, the inflation rate peaked at 2.1% in May before dropping to 2.0% in June. The "core inflation" for June 2024 was 2.7%, a figure that reflects the cost of goods and services excluding energy and unprocessed food.
The trade policy of US President Donald Trump has introduced uncertainty about the future development of inflation. Tariffs on industrial goods could potentially affect prices and ultimately hit consumers, potentially driving up inflation in the eurozone. However, the conflict between Israel and Iran had no significant impact on Germany's inflation rate.
Most economists expect a pause in rate cuts for the ECB's next decision on July 24, 2024. The ECB has already cut the deposit rate for the eighth time since last summer, most recently to 2.0%. The still pronounced increase in service prices in Germany is a factor that could deter the ECB from further rate cuts for the time being.
As for the future, economists, including the Council of Experts, expect a value of around 2% also in the annual average for 2025. Meanwhile, the Bundesbank forecasts that the inflation rate in July 2024 will fluctuate around the 2% mark.
The planned billions for defense and infrastructure in Germany could potentially influence inflation in the country, with some economists expecting inflation to rise due to additional demand. However, for now, the consensus remains that inflation will remain stable near the target of 2% for the remainder of 2025.
In the broader context, the EU is currently engaged in negotiations with Washington to prevent a trade war. The outcome of these negotiations could have implications for the inflation rates in both the EU and the US. As always, the situation will be closely monitored by economists and policy-makers alike.
In light of the projected stability of Germany's inflation rate, businesses may witness steady finance growth, especially in service sectors like insurance, package tours, and car repairs. Additionally, the forecasted continuation of the inflation rate around 2% for 2025 suggests a potential stability in business finance for the year.
