German inflation confirmed at 2% in July on cheaper energy

Germany's annual inflation rate held at 2% in July, unchanged from June, as lower energy prices helped offset an uptick in food costs, the Federal Statistical Office said on Wednesday, confirming preliminary figures.

"The rate of inflation has stabilized since the start of the year and remained unchanged again for two consecutive months," said Ruth Brand, president of the statistics agency.

"Energy prices are continuing to drop and have a downward effect on overall inflation. On the other hand, the increase in service prices, in particular, remains above average and is driving up inflation."

On a monthly basis, prices climbed 0.3% from June to July.

Core inflation, which excludes the volatile prices of food and energy, remained elevated at 2.7% compared to the same month last year.

Food prices creep higher

Food prices rose 2.2% year-on-year, slightly faster than in June.

Fresh fruit was 7.6% more expensive, sugar and confectionery 5.6% higher, and dairy products and eggs up 4.1%. Chocolate prices jumped 18.6%. By contrast, vegetable prices fell 3.2%, and potatoes were 16.1% cheaper than in July 2024.

Energy prices down

Energy prices fell 3.4% year-on-year in July, helping to keep overall inflation in check, though the drop was smaller than in previous months. Fuel prices fell 4.5%, while heating oil and wood pellets were down 5.0% and 5.3%, respectively. Electricity prices declined 2.0%.

Service sector inflation still strong

Prices for services rose 3.1% from a year earlier, still above the headline rate but easing from 4.0% at the start of the year. Higher wages were one factor driving the increase.

Outlook for the year

Economists expect inflation in Europe’s largest economy to average around 2% for 2025 - in line with the European Central Bank’s target for price stability across the eurozone.

Sustained inflation above that level can erode purchasing power, while prolonged deflation can also hurt growth by prompting households and businesses to delay spending.

Germany’s inflation surged to 6.9% in 2022 and 5.9% in 2023 after Russia’s invasion of Ukraine drove up energy and food costs. Inflation eased to 2.2% last year.