Germany's inflation rate continued its downward trend in April 2025, easing to 2.1 percent year-over-year from 2.2 percent in March, in line with consensus expectations. This decline was primarily driven by a sharper drop in energy prices, which fell by 5.4 percent compared to April 2024, led by significant decreases in motor fuel and heating oil costs. However, core inflation remained stubbornly high at 2.9 percent, signalling persistent price pressures in non-energy sectors.

Food inflation, though slightly moderated, remained elevated at 2.8 percent, fuelled by notable increases in the prices of fruit, vegetables, and dairy. Service costs saw the steepest climb, rising by 3.9 percent year-over-year, with marked hikes in transport and healthcare-related servicesairfare alone surged by 19.1 percent. Goods inflation was more subdued at 0.5 percent, tempered by falling prices in technology and energy.

Month-over-month, consumer prices rose by 0.4 percent in line with the consensus and matching the rise in the previous month, mainly due to seasonal increases in travel and fresh produce. The harmonised index of consumer prices was stable over the month (0.5 percent) and over the year (2. Percent). The data suggest that while headline inflation is softening, underlying inflationary pressures, especially in services, remain strong, taking the RPI to 34 and the RPI-P to 39. This means that economic activities remain well ahead of the expectations of the German economy.

The consensus sees no revision in increases of 0.4 percent on month and 2.1 percent on year already reported for April.

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.