Germany's industrial producer prices in April 2025 reveal that prices fell by 0.9 percent year-over-year (0.4 percent below the consensus) and 0.6 percent month-over-month (0.3 percent below the consensus), driven primarily by sharp declines in energy costs. Energy prices dropped 6.4 percent from April 2024, led by significant falls in natural gas (minus 6.2 percent), electricity (minus 7.5 percent), and heating oil (minus 16.5 percent). When energy is excluded, however, producer prices rose 1.5 percent over the year, underscoring cost pressures in other sectors.

Capital goods (2.0 percent), durable consumer goods (1.4 percent), and especially non-durable consumer goods (3.2 percent) experienced price growth. Food prices rose markedly, with coffee surging 43.3 percent and beef 30.4 percent year-over-year, highlighting inflationary strain in essential goods. Intermediate goods showed marginal year-over-year growth (0.3 percent), with notable increases in timber and animal feed prices, while metals and chemicals saw modest declines.

This report suggests that energy disinflation is masking persistent cost pressures in consumer and capital goods. The contrasting trends highlight a potential structural shift, where subdued energy prices may provide temporary relief, but underlying input and consumer costs remain elevatedposing nuanced challenges for manufacturers and policymakers. This latest update takes the German RPI to 19 and the RPI-P to 37, meaning that economic activities are well ahead of market expectations in Germany.

Deflation continues with wholesale prices expected down 0.3 percent on month in April and down 0.5 percent on year after declines of 0.7 percent and 0.2 percent respectively in March.

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.