The CPI rose by 2.6 percent in December 2024 compared to the same month in the previous year, exceeding the annual average of 2.2 percent for 2024 and the consensus estimate of 2.4 percent. Month-over-month, consumer prices increased by 0.4 percent (0.1 percentage points above the consensus) signalling persistent short-term upward price trends.

Similarly, the harmonised index for consumer prices (HICP), which allows for EU-wide comparisons, recorded a higher annual increase of 2.8 percent and a notable 0.7 percent rise from November. With an annual average HICP inflation rate of 2.5 percent, these figures highlight a slightly more pronounced inflationary environment when harmonised standards are applied.

Core inflation, at 3.1 percent for December, exceeds both headline CPI and HICP rates. This suggests that inflationary pressures are entrenched in non-volatile sectors, such as services and durable goods, excluding food and energy.

Overall, the data reflects a complex inflation landscape where both volatile and core components contribute to rising costs. The latest update brings the German RPI to 24 and the RPI-P to 9. This means that economic activities are generally slightly ahead of market expectations.

German headline inflation is seen at 2.4 percent on year in December, up from 2.2 percent in November. On the month, the consensus looks for CPI up 0.3 percent after a decline of 0.2 percent in November.

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.