German inflation remains stable at 2% in July

Consumer prices in Germany rose at an unchanged pace in July, with goods and services on average 2% more expensive than a year ago, the German Federal Statistical Office reported on Thursday.

Based on preliminary data, services with an increase of 3.1% and food with a rise of 2.2% are driving inflation. Energy prices have once again dampened inflation, although not as strongly as in previous months, with energy being 3.4% cheaper than in July 2024.

Core inflation, excluding volatile prices for food and energy, remains higher at 2.7%, the same as in June. Commerzbank's chief economist Jörg Krämer describes this as a "blemish," posing an inflation risk amid a recovering economy.

The increased inflation in services has been persistent for months, with the 3.1% in this sector only 0.2 points lower than in June. One reason is increased wages.

The European Central Bank (ECB) took on an observer role at its latest interest rate meeting a week ago: After seven consecutive rate cuts, the monetary authorities saw inflation as sufficiently contained that no further rate move seemed necessary for the time being; The key interest rate remained unchanged at 2%.

Controversies between proponents and opponents of even looser monetary policy are expected at the next quarter's rate-setting meeting.

With an inflation rate of 2%, the ECB sees its goal of price stability maintained.

Lower price increases could hinder economic growth as individuals and companies might delay their investments in anticipation of even lower prices.

Compared to June, prices have risen by 0.3%, the authority reported.

The German central bank, the Bundesbank, assumes that the inflation rate in Germany will fluctuate around the 2% mark in the coming months. The Council of Economic Experts expects that the annual average for 2025 will also result in a value around 2%.

In the full year 2022, inflation in Germany surged to 6.9%, and in 2023 it was 5.9%. After Russia's full-scale invasion of Ukraine in February 2022, prices for energy and food skyrocketed.

Last year, inflation eased back to 2.2%.

The higher the inflation rate, the lower the purchasing power of the people.