Germany's inflation drops to 1.8% in July lower than expected

According to Destatis figures released Thursday, inflation in Germany eased to 1.8% in July, coming in below expectations. Per a Reuters poll, economists expected inflation to fall to 1.9%.

In June, the country’s inflation stood at 2%, matching the European Central Bank’s target.

Economists and analysts are still looking for the effects of President Trump’s tariffs

According to preliminary figures, German inflation data from key states varied, as rates remained flat in certain areas but shifted marginally elsewhere. Inflation in North Rhine-Westphalia held firm at 1.8%, corresponding to June. Likewise, Baden-Württemberg maintained its rate at 2.3%.

On the other hand, Bavaria’s state inflation rose to 1.9% from 1.8% in the previous month, while Lower Saxony’s rate slipped to 1.9% from 2.2%.

Germany is still the biggest economy in the euro zone, making its inflation data especially impactful for the bloc. The Eurozone is set to release its inflation data later this week, with expectations pointing to 1.9%. According to the data, core inflation, which excludes volatile food and energy prices, held steady at 2.7% in July, unchanged from June. Meanwhile, services inflation, a key metric, eased to 3.1% from 3.3% the month before.

Analysts are watching inflation developments carefully amid the rollout of President Trump’s tariff policies, which have included sector-specific measures and temporarily modified reciprocal duties. Last week, the US and EU agreed on 15% tariffs on EU imports after a round of talks. Analysts, however, expect the levies to drive prices higher in the US, but the extent of their impact on inflation beyond US borders is still uncertain.

A day before Thursday’s inflation release, Destatis published an initial estimate of Germany’s Q2 GDP, revealing a slight 0.1% contraction, compared to 0.3% growth in the previous quarter.

Spain leads growth as Germany and Italy slip

According to Eurostat, in Q2, the Eurozone’s seasonally adjusted GDP surged 0.1%  and by 0.2% in the EU, quarter-on-quarter. Year-on-year, seasonally adjusted GDP grew by 1.4% in the euro area and 1.5% in the EU in Q2 2025, slightly down from 1.5% and 1.6% in the previous quarter. 

Spain led quarterly growth among EU Member States with a 0.7% increase, trailed by Portugal, 0.6% and Estonia, 0.5%. GDP fell in Ireland by 1.0% and edged down in Germany and Italy, both by 0.1%.

In the first quarter of 2025, GDP climbed 0.6% in the euro area and 0.5% in the EU, recovering from zero growth in the euro zone during the previous quarter. In Q4 2024, economists expected GDP to grow by 0.1%, following a stronger-than-anticipated 0.4% expansion in the third quarter. However, weaker performance from Germany and France—the euro zone’s two largest economies—dampened the overall result.

Q4 data showed Germany’s GDP contracted by 0.2%, France experienced a minor decline, and Italy’s economy remained steady in the quarter. Nonetheless, Spain’s economy grew by 0.8% in Q4, and Portugal posted an even sharper 1.5% expansion, fueled by a boost in household spending.

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