Current Inflation Situation in Germany and the Eurozone
The inflation figures from Germany, the Eurozone, and the individual federal states set important monetary policy accents at the beginning of the July week. They are crucial for market movements and the monetary policy decisions of the European Central Bank (ECB).
Inflation in Germany was approximately 2.1 percent in May 2025, just above the ECB’s target of around 2 percent. This rate has remained stable after a slight softening. In other major Eurozone countries such as Spain, Italy, and France, inflation rates have dropped below the target level.
The core inflation, which excludes energy and food and is considered an important indicator for fundamental price developments, also slightly decreased to about 2.8 percent in Germany.
Significance for ECB Monetary Policy
Expectations suggest that the ECB will continue its interest rate cuts based on this data. The key interest rate has already been lowered several times since the autumn of 2024. Another rate move to a deposit rate of 2 percent was projected for early June, and this trend is likely to continue with fresh inflation data in July.
The developments indicate a relaxation of price pressure, which provides the ECB with room for a loose monetary policy to promote economic growth without the risk of overheating.
Impact on Markets
These inflation figures have a significant impact on short- to medium-term market movements. They influence expectations regarding interest rate decisions as well as the bond, stock, and currency markets. Lower or stable inflation close to the target value is viewed positively – both for purchasing power stability and in a moderate interest rate environment.
In summary, the current inflation data from Germany and other parts of Europe mark important diplomatic signals and will significantly determine how the ECB further shapes its monetary policy.