Germany's inflation rate for February 2025 is provisionally estimated at 2.3 percent year-over-year, reflecting a modest yet persistent upward trend in consumer prices. The month-over-month increase of 0.4 percent suggests continued price pressures, albeit at a controlled pace. Notably, the harmonised index of consumer prices (HICP), which allows for European comparability, stands at 2.8 percent year-over-year, indicating slightly stronger inflationary dynamics compared to the national CPI.

Core inflation, which excludes volatile items like food and energy, is estimated at 2.6 percent, emphasising persistent underlying price pressures. This suggests that inflation is not solely driven by external shocks but also by structural factors within the economy.

If core inflation remains elevated, calls for caution in interest rate reductions may intensify. For consumers, the steady price increases could continue to weigh on purchasing power, potentially influencing spending behaviour in the coming months. This latest update takes the RPI to minus 21 and the RPI-P to minus 20, meaning that economic activities lag market expectations in Germany.

The consensus looks for CPI up 0.4 percent on the month and up 2.3 percent on year in February after a decline of 0.2 percent on the month and an increase of 2.3 percent on year in January.

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.