Industrial producer prices in January 2025 slightly rose by 0.5 percent year-over-year, suggesting a cooling pace of inflation, down from the 0.8 percent recorded in December 2024. However, this moderation was largely driven by energy price reductions, while consumer goods and capital goods remained on an upward trajectory.

Energy prices, the key deflationary force, fell 1.0 percent year-over-year and 0.9 percent month-over-month, with electricity (minus 1.8 percent) and natural gas (minus 1.9 percent) leading the decline. This easing in energy costs could alleviate production costs for manufacturers, though rising mineral oil prices (0.7 percent year-over-year, 4.4 percent month-over-month) indicate volatility in fuel markets. Meanwhile, non-durable consumer goods prices surged by 3.0 percent, driven by soaring food costs, notably butter (39.8 percent) and confectionery (24.0 percent). Capital goods also steadily rose (1.9 percent), reflecting sustained investment demand.

Intermediate goods remained stable, with only minor glass, chemicals, and metals fluctuations. Overall, the data signals a shift in cost pressures, where declining energy prices counterbalance inflationary trends in consumer goods and industrial inputs. The latest update takes the German RPI to 10 and the RPI-P to 25. This means that economic activities are generally ahead of market expectations in the German economy.

The consensus for German producer prices sees an increase of 0.5 percent month on month and an increase of 1.2 percent from a year ago.

The Producer Price Index (PPI) measures the price of industrial and commercial goods produced and sold domestically (excluding turnover tax). About 1,250 types of goods are used to calculate the index and prices are reported by a total of 5,000 enterprises under fixed contractual conditions. Changes in the index provide a guide to inflation from the point of view of the product's producer/manufacturer and, in contrast to the consumer price index (CPI), excludes VAT and other deductible taxed associated with turnover.

The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI).

Because the index of producer prices measures price changes at an early stage in the economic process, it can serve as an indicator of future inflation trends. The producer price index and its sub-indexes are often used in business contracts for the adjustment of recurring payments. They also are used to deflate other values of economic statistics like the production index. It should be noted that the PPI excludes construction. These price statistics cover both the sales of industrial products to domestic buyers at different stages in the economic process and the sales between industrial enterprises.

The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.