Summary:
German inflation fell more than expected to 1.8% in July 2025 – below both Reuters’ 1.9% forecast and the European Central Bank’s 2% target. This follows June’s 2% reading and occurs alongside a 0.1% quarterly GDP contraction. Core inflation remained stubborn at 2.7%, while services inflation eased to 3.1%. Economists are monitoring how new U.S. tariffs on EU goods could disrupt this disinflation trajectory amid weakening economic growth signals.
What This Means for You:
- Monitor ECB rate decisions: Continued below-target inflation increases likelihood of monetary easing before 2026
- Reassess eurozone export exposure: Prepare supply chain contingencies for potential 15% U.S. tariff retaliation effects
- Review pricing strategies: Service sector businesses should anticipate reduced pricing power as inflation cools
- Watch for stagflation signals: The GDP-inflation divergence warrants caution in long-term eurozone investments
Original Post:
Rhineland-Palatinate, Mainz: Fruit is sold at the weekly market.
Andreas Arnold/dpa | Picture Alliance | Getty Images
German inflation fell more than expected to 1.8% in July, data from statistics agency Destatis showed Thursday.
Economists polled by Reuters had anticipated inflation to dip to 1.9%. July’s reading compares to the 2% print recorded in June, which brought the German inflation rate in line with the European Central Bank’s target.
The figures are harmonized across the euro zone to ensure comparability. Euro zone inflation data is due later this week, with the reading forecast to come in at 1.9%.
So-called core inflation, which strips out food and energy costs, came in at 2.7% in July, unchanged from the previous month. Meanwhile the closely watched services inflation print eased further from 3.3% in June to 3.1% in July.
Carsten Brzeski, global head of macro at ING, said in a note the latest data suggests Germany is “currently experiencing a process of disinflation,” expecting headline inflation to remain slightly below 2%.
Inflation figures are being watched closely as analysts assess the impact of U.S. tariffs. Last week’s agreement includes EU goods being hit with 15% tariffs, creating potential inflationary crosscurrents.
The data follows Destatis’ preliminary reading showing Germany’s economy shrank 0.1% in Q2 2025, down from 0.3% growth in Q1.
Extra Information:
- ECB Inflation Framework Details (Explains target mechanics referenced in June report)
- EU-U.S. Tariff Schedule (Provides product-specific tariff implementation timelines)
People Also Ask About:
- How does Germany’s inflation affect ECB policy? Persistent undershooting increases pressure for rate cuts despite core inflation persistence.
- Could U.S. tariffs reverse disinflation? Potentially, if EU exporters offset U.S. losses through Eurozone price hikes.
- What’s driving Germany’s services inflation? Primarily wage growth in healthcare, hospitality and professional services sectors.
- How significant is 0.1% GDP contraction? Technically not recessionary but reflects weakening industrial demand.
Expert Opinion:
“The July data reveals a critical divergence between headline and core inflation that complicates ECB policymaking,” notes Carsten Brzeski, ING’s Global Head of Macro. “While falling energy prices drive headline figures down, persistent services inflation suggests underlying price pressures require continued vigilance even amid growth concerns.”
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