Producer prices of industrial products in Germany dropped by 0.2 percent year-over-year and 0.7 percent month-over-month in March 2025, primarily due to a notable fall in energy costs. These figures were 0.6 percent and 0.7 percent below the consensus estimates for the month-over-month and year-over-year results. When energy is excluded, prices increased by 1.4 percent compared to March 2024, revealing underlying inflationary pressures. The steepest declines were seen in electricity and heating oil, while natural gas and district heating also fell.

In contrast, consumer goods became more expensive: non-durable goods rose by 2.6 percent, driven by significant spikes in food pricesespecially coffee (35.2 percent) and butter (28.4 percent). Capital goods and durable consumer goods also recorded modest increases, reflecting stable demand. Intermediate goods rose slightly, with timber and paper products showing strong annual growth. However, materials such as glass and non-coniferous timber saw price reductions.

This mixed trend suggests that while falling energy prices eased overall industrial cost pressures, inflation persists in essential consumer goods and capital inputs, likely influencing both producer margins and end-user prices. The latest update takes the German RPI to minus 23 and the RPI-P to minus 15. This means that economic activities are well behind market expectations of the German economy.

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.