German inflation May 2025
Germany’s annual inflation reached 2.1% in May, approaching the European Central Bank’s target of 2%. This figure was slightly higher than analysts’ expectations, as per preliminary data from statistics office Destatis. The previous month had a reading of 2.2%, while analysts had projected a 2% inflation rate.
Core inflation, which excludes volatile food and energy prices, decreased slightly from 2.8% in April to 2.9% in May. The services inflation rate also saw a significant drop, coming in at 3.4% compared to 3.9% in the previous month. Energy prices experienced a notable decline for the second consecutive month, falling by 4.6% in May.
The consumer price index in Germany has been steadily approaching the ECB’s 2% target in recent months, which is a positive sign amid uncertainties surrounding the country’s economic outlook. Carsten Brzeski, global head of macro at ING, believes that the target will be met in the coming months.
Looking ahead, German inflation is expected to continue its downward trend, possibly dropping below 2% in the coming months. Various factors, including changes in the labor market and government fiscal stimulus, are likely to influence inflation levels throughout the second half of the year.
External factors such as U.S. President Donald Trump’s tariffs and domestic issues related to the newly formed government could impact Germany’s economic growth and inflation rates. The ECB is scheduled to announce its next interest rate decision on June 5, with a high probability of a quarter-point interest rate reduction.
Following the release of the inflation data, German bund yields saw a slight increase. The 2-year bund yield rose by over one basis point to 1.719%, while the 10-year bund yield was less than one basis point higher at 2.521%.
Overall, the latest inflation figures indicate a continued trend of disinflation, providing the ECB with a stronger case for further rate cuts rather than maintaining the current rates. The economic landscape in Germany remains uncertain, with both domestic and global factors influencing future inflation levels.
