By December 2025, German inflation rates had plummeted. Consumer price inflation Consumer headline inflation, measured by national standards, dropped to 1.8% year-on-year, in contrast to this period last year. This reduction represents quite the drop-off from the 2.3% inflation rate for November. Germany’s European-wide measure of inflation followed suit. It was 2.0%, down from 2.6% the month before.
Seven factors have propelled the decline in inflation. `Beneficial energy base effects’ and decreases in prices of recreation, apparel and food spearhead this trend. As we explained last week, these disinflationary drivers have been a big contributing factor to the overall reduction in inflation rates over the past month. Core inflation, which strips out the most volatile items including food and energy, dropped to 2.4% YoY. This decline continues a larger trend of easing price pressures across Germany’s economy.
Services inflation remained sticky at 3.5% YoY. This is a good example that despite some sectors experiencing price declines, other sectors are still contributing to increased inflation rates overall. This suggests that services inflation is very buoyant. The short-term outlook for German headline inflation is brightening, with forecasts for continued fallbacks over the next months.
Analysts forecast that German headline inflation will stay below the 2% threshold at first before re-accelerating later this year. In addition, forecasts call for inflation to be approximately 2% over the next five years. It’s projected to begin just under this mark and then increase to just over it later in the year. These projections are the result of both demand and supply issues, including the strength of the currency and commodity prices.
Looking forward, the disinflationary forces should continue to dominate in the near term. On imported inflation, the greater strength of the euro has provided further support, contributing at least in part to the downward trend we have observed in recent weeks. Economists forecast that German inflation will continue to fall until early 2026. They similarly predict a potential comeback once market conditions change.