Current Investigations and Trends
The preliminary data from the Federal Statistical Office shows that the inflation rate in Germany – measured by the Harmonized Index of Consumer Prices (HICP) – was +2.2% in April 2025 compared to the same month last year. This trend continues to decline: in March 2025, the rate was still +2.2%, and in January and February it was +2.3% each. The monthly rate increased by 0.5% compared to the previous month.
The decline in inflation is particularly attributed to the weaker price development of energy. In contrast, rising prices for food and services continue to drive inflation.
Importance for Monetary Policy and Financial Markets
Monetary Policy Implications: An unexpected decline in inflation may prompt the European Central Bank (ECB) to reconsider its monetary policy measures. Since the ECB’s inflation target is just under 2%, a sustained weakening could reduce pressure for further interest rate hikes or even create room for interest rate cuts.
Market Reactions: Investors are closely monitoring this development. Declining inflation rates can influence long-term interest rate decisions, thereby affecting both bond yields and stock valuations. In particular, savers benefit from a more stable price level; however, investors must expect lower return prospects.
Cyclical Context
The German economy is currently in a phase of weak growth (“tin-sheet economy”). For the year 2025, a slight decline in GDP of about -0.2% is expected; only for 2026 is a slight increase of around +0.3% forecasted. According to KfW Research, inflation in Germany is expected to average around 2.4% in 2025, while in the Eurozone it is around 2.2%; values of about 2.0 to 2.2% are expected for the following year.
Summarized Influencing Factors on Inflation
| Factor | Effect on Inflation |
|---|---|
| Energy Prices | Suppressing |
| Food Prices | Driving |
| Service Prices | Driving |
Conclusion
The unexpected decline in German HICP inflation signals a relaxation in price pressure and could lead to a loosening of monetary policy in the medium term. This has far-reaching consequences for savers and investors, as well as for the overall economic development of Germany and Europe.