Persistent Inflation Holds Steady at 2.1% Levels
Germany's Inflation Rate Remains Stable at 2.1% in May
Wiesbaden - Germany's inflation rate, calculated by the Federal Statistical Office, remained unchanged at 2.1% in May compared to the previous month, April.
The primary contributors to this stable inflation rate were a decrease in energy prices and a lower cost for consumers in that sector, compared to the same period last year. Energy prices dropped by 4.6% in May, a slight improvement from the 5.4% decrease in April.
On the other hand, food prices saw a disproportionate increase, rising by 2.8% in May. This rise in food prices follows a 3.0% increase in March.
Services prices, such as restaurant visits, vacation packages, and car repairs, continued to rise, with a 3.4% increase in May compared to the previous year. This high inflation rate for services is attributed to the rapid passing on of higher labor costs, particularly for services with a higher labor cost share.
Commerzbank's Chief Economist, Jörg Krämer, emphasized the issue of persistent core inflation, stating, "Excluding the volatile prices for energy and food, the inflation rate remains a clear 2.8% above the ECB's target of 2%."
In the euro area, inflation remained stable at 2.2% in April, according to Eurostat data, slightly above the ECB's medium-term target of 2%.
Central bankers aim to avoid both the erosion of purchasing power and persistent falls in prices. If companies and consumers postpone investments due to the hope of cheaper prices in the future, this could negatively impact the economy.
Given the recent inflation development, economists anticipate the ECB to decide on a further interest rate cut on June 5 - this would be the eighth since summer 2024. The deposit rate relevant for savers and banks could be reduced from 2.25% to 2%.
Lower interest rates generally make loans cheaper, which can stimulate economic growth. However, savers may expect deteriorating interest rates on deposit offers.
The evolution of Germany's prices for goods and services in the coming months will depend on the course of the trade dispute with the U.S. The Bundesbank expects Germany's inflation rate to hover around the 2% mark in the coming months.
Various forecasts suggest that the inflation rate will be near 2% for the entire year 2025. In 2024, Germany's inflation rate averaged 2.2%.
Relevant background information indicates that food and energy prices have significantly influenced Germany's inflation rate during the years 2024 and 2025. While specific monthly changes in food and energy prices for these years are not detailed in the available data, the overall moderation in inflation suggests that these sectors also experienced declining price pressures. Particularly in 2025, there was a significant drop in energy prices, with a decline of 5.4% in April compared to a 2.8% decrease in March. This was largely due to lower prices for motor fuels, solid fuels, and heating oil. Furthermore, food price increases softened, rising by 2.8% in April compared to 3.0% in March, contributing to the overall stabilization of inflation in 2025.
In light of the latest inflation data, analysts predict a potential interest rate adjustment by the European Central Bank (ECB) on June 5, as the current deposit rate of 2.25% for savers and banks may be reduced, making loans more affordable. Conversely, this could lead to decreased interest rates for depositors in the finance sector.
