Germany's producer prices in August 2025 signalled ongoing deflationary pressure in industrial markets, with overall prices down 2.2 percent year-over-year and 0.5 percent month-over-month. The decline was primarily driven by falling energy costs, which were 8.5 percent lower than a year earlier, reflecting steep drops in natural gas (minus 11.0 percent) and electricity (minus 10.8 percent). Mineral oil products, including heating oil and motor fuels, also recorded notable decreases.

Stripping out energy, however, producer prices rose 0.8 percent from a year earlier, showing that underlying cost pressures persist. Capital goods climbed 1.8 percent, supported by machinery and vehicle price increases, while consumer goods also rose. Non-durable goods were up 3.3 percent, largely due to food price hikes, with coffee (33.1 percent) and beef (36.6 percent) standing out, despite sharp falls in sugar (minus 36.8 percent). Durable goods, such as household items, rose more moderately at 1.7 percent.

Intermediate goods remained a weak spot, down 1.0 percent from August 2024, reflecting lower costs for chemicals, steel, and animal feed, though wood and glass products bucked the trend with price increases.

Overall, the data show a mixed picture as energy-led declines ease cost burdens for industry. However, consumer-facing goods are still pushing higher, underscoring persistent divergence in Germany's producer price landscape. This latest update takes the RPI to minus 15 and the RPI-P to minus 11, meaning that economic activities continue to underperform the expectations of the German economy.

Wholesale prices are seen down 0.1 percent on the month and down 1.7 percent on year in August after slipping by 0.1 percent on the month in July and declining 1.5 percent on year.

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.