Germany's annual inflation rate fell from 2.6 percent in December 2024 to 2.3 percent in January. This suggests that while inflation persists, it remains slightly above the target of 2 percent, influenced by stabilising supply chains and cautious consumer spending. However, the 0.2 percent decline from December 2024 signals a short-term price correction, possibly reflecting seasonal factors such as post-holiday demand dips.

The harmonised index of consumer prices at 2.8 percent year-over-year presents a slightly higher inflation measure, aligning with broader European trends. More notably, core inflation at 2.9 percent, hints at underlying price pressures. While inflation appears controlled, policymakers may remain vigilant, balancing the need for price stability with economic growth.

If this trend continues, the ECB remains on track to cut rates further in the coming months, but in a gradual and limited way, taking the policy rate to 2 percent by year-end. This signals that consumers and businesses may experience a relatively stable cost environment in 2025, barring unexpected shocks. The latest updates plunged the RPI to minus 26 and the RPI-P to minus 9, meaning that economic activities are generally behind market expectations of the German economy.

CPI is expected up 0.1 percent on the month and 2.6 percent on year after rising 0.5 percent on the month and 2.6 percent on year in December.

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.