Germany's inflation rate held steady at 2.1 percent in May 2025, in line with the consensus forecast and mirroring April's figure. This confirms a trend of stabilisation, largely supported by falling energy prices. Energy costs were 4.6 percent lower year-over-year, with fuel and heating oil experiencing sharp declines. However, inflationary pressures persisted in other areas. Food prices rose by 2.8 percent, exceeding headline inflation, driven by price surges in fruit, dairy, and chocolate, although some staples like sugar and vegetables became cheaper.

Core inflation, which excludes energy and food, stood at a firmer 2.8 percent, reflecting ongoing cost increases in essential services. Service prices rose 3.4 percent, led by notable spikes in public transport, insurance, and healthcare. Meanwhile, goods inflation was milder at 0.9 percent, though items like coffee (17.6 percent) and tobacco (5.9 percent) saw substantial increases.

On a monthly basis, the consumer price index edged up 0.1 percent in line with the consensus forecast, with accommodation and beverage prices pushing upward, while energy, food, and airfares declined. Indeed, the latest updates suggest that although headline inflation is under control, underlying pressures remain elevated, particularly in services and food, posing continued challenges for household budgets and monetary policy. This latest update takes the RPI and RPI-P to 15, meaning that economic activities are behind the expectations of the German economy.

Forecasters see no revision in the final CPI from increases of 0.1 percent on month and 2.1 percent on year in the flash.

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.