Germany's headline inflation remained at 2.0 percent year-over-year, matching June's pace, while core inflation held higher at 2.7 percent, emphasising persistent price pressures beyond volatile food and energy. Energy prices fell 3.4 percent annually, continuing their moderating trend, driven by cheaper motor fuels, heating oil, and electricity, though natural gas edged up. Food inflation outpaced the headline at 2.2 percent, with notable rises in fruit, confectionery, and dairy, offset by steep drops in vegetables, sugar, and potatoes.

Service prices, up 3.1 percent, were the key inflation driver, fuelled by double-digit rises in combined passenger transport and strong gains in insurance, catering, and maintenance services. Goods prices rose 1.0 percent, led by non-alcoholic beverages and tobacco, though electronics and household appliances saw declines.

On a monthly basis, CPI rose 0.3 percent, pushed by higher travel costs during the holiday season, with international flights and package holidays surging over 10 percent. Energy prices ticked up from June, while food prices remained stable.

Overall, falling energy costs are cushioning households, yet elevated service prices signal underlying inflationary persistence that could shape policy attention in the months ahead. The latest update takes the RPI to minus 3 and the RPI-P to minus 16. This indicates that economic activities adjusted for prices remain behind the expectations of the German economy.

No change expected in the final July reading from the flash with CPI up 0.3 percent on the month in July and up 2.0 percent on year.

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.