Germany's producer prices for industrial products continued their downward trend in May 2025, falling by 1.2 percent year-over-year and 0.2 percent from April. This marks a sharper annual decline than the previous month, primarily driven by a notable drop in energy prices, down 6.7 percent year-over-year, with electricity alone falling 8.1 percent. Lower prices for natural gas, district heating, and mineral oil products reinforced this trend, easing cost pressures for industrial producers.

Yet, outside the energy sector, the picture is mixed. Excluding energy, producer prices rose annually by 1.3 percent, signalling underlying inflation in core production areas. Capital goods saw moderate gains (1.9 percent), while consumer goods surged (3.6 percent), especially food, where staples like coffee (41.2 percent) and beef (35.7 percent) saw steep increases. Durable goods also edged up.

Intermediate goods, on the other hand, weakened slightly (minus 0.2 percent), reflecting lower input costs for producers. Prices for metals, chemicals, and glass declined, though some subcategories such as softwood lumber (13 percent) and paper (3.2 percent) rose.

May's figures reflect a dual trend: energy-driven disinflation masking persistent cost increases in key production inputs, suggesting continued caution for inflation forecasts. These updates changes the RPI to 4 and leaves the RPI-P at 5, meaning that economic activities in Germany remain in line with expectations.

Wholesale prices are seen down 0.2 percent on the month in May and down 1.2 percent on year in May after falling 0.6 percent on the month and declining 0.9 percent on year in April.

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.