German Wholesale Inflation Drops as Energy Costs Fall

Germany's producer price index (PPI) for May revealed a year-on-year decline of -2.2%, a slight improvement from April's -3.3%, yet still marginally above the anticipated -2%. 

This marks the eleventh consecutive month of falling wholesale prices, largely driven by decreasing energy costs. Natural gas prices plummeted by -16.3% and electricity costs fell by -11.3%, significantly contributing to the overall decline in the PPI.

Intermediate goods also saw a reduction in costs, with basic chemicals down by -4.9%, paper products falling by -6.1%, wood products declining by -4.5%, and metals by -4.1%. These decreases in commodity prices have been pivotal in the broader trend of falling wholesale inflation.

On a month-to-month basis, the PPI remained flat at 0%, down from April's 0.2% and lower than the forecasted 0.3%. Despite these declining wholesale prices, the broader economic outlook remains uncertain, with German inflation increasing slightly to 2.4% in May, up from 2.2% in March and April. 

The European Commission's economic forecast anticipates that Germany will experience stagnation in 2024, following a recession in 2023. Despite an expected moderate GDP growth of 0.1% in 2024 and 1% in 2025, investment levels are projected to remain below pre-pandemic levels due to high financing costs. 

Additionally, exports are predicted to recover slowly, with domestic demand driving moderate growth. Unemployment is expected to stay steady at 3.1% through 2025, as fiscal consolidation continues and government deficits and debt levels decrease with the reduction of energy support measures.