In June 2024, the consumer price index rose 2.2 percent year-over-year, with a marginal 0.1 percent increase from the previous month. The harmonised index of consumer prices showed a slightly higher annual growth of 2.5 percent and a 0.2 percent monthly rise. Notably, energy and food prices have consistently dampened overall inflation since the start of the year. In stark contrast, service prices have surged above average, driven by robust post-pandemic demand and rising labour costs.

Core inflation, which excludes food and energy prices, was 2.9 percent year-over-year, dipping below 3 percent for the first time since February 2022. This core rate, however, has been significantly higher than overall inflation since January 2024, reflecting persistent price pressures in other essential goods. April and May 2024 saw core inflation at 3.0 percent year-over-year, underscoring sustained inflationary trends outside the food and energy sectors.

This divergence suggests a nuanced inflation landscape, where essential goods remain stable while discretionary spending faces upward pressure. This trend underscores the complexity of the current economic environment, where sector-specific dynamics significantly influence overall inflation. Today's update raises the German RPI to minus 18 and raises the RPI-P to minus 13, but economic activity in general is still performing below market expectations.

No revisions are expected to the provisional data.

The consumer price index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. A provisional estimate, with limited detail, is released about two weeks before the final data are reported.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Germany where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer. As a member of the European Monetary Union, Germany's interest rates are set by the European Central Bank.

Germany like other EMU countries has both a national CPI and a harmonized index of consumer prices (HICP). The HICP is calculated to give a comparable inflation measure for the EMU. Components and weights within the national CPI vary from other countries, reflecting national idiosyncrasies. The preliminary release is based on key state numbers which are released prior to the national estimate. The states include North Rhine-Westphalia, Baden-Wuerttemberg, Saxony, Hesse, Bavaria and Brandenburg. The preliminary estimate of the CPI follows in the same day after the last of the state releases. The data are revised about two weeks after preliminary release.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.