German inflation fell more than anticipated in July, dropping to 1.8%, according to data released Thursday by the federal statistics agency, Destatis.
The figure, which is harmonized for comparability across the euro zone, was below the 1.9% forecast by economists in a Reuters poll and down from the 2.0% rate recorded in June. The European Central Bank’s inflation target is 2.0%.
While the headline rate decreased, core inflation, which excludes volatile food and energy costs, held steady at 2.7%. Inflation in the services sector eased slightly to 3.1% from 3.3% in the previous month.
Carsten Brzeski, global head of macro at ING, said in a note that the latest data suggests Germany is “currently experiencing a process of disinflation,” and projected that headline inflation would likely remain near the 2% mark.
Analysts are closely monitoring inflation figures for potential impacts from U.S. tariff policies. A recent agreement between the European Union and the U.S. includes a 15% tariff on certain EU goods, but its effect on European prices is unclear.
“While one scenario could see prices falling in the eurozone due to overcapacities and weaker sales in the US, globally operating companies might try to actually increase prices in Europe in order to offset profit squeezing in the US,” Brzeski noted.
The inflation report follows Wednesday’s preliminary data showing the German economy shrank by 0.1% in the second quarter, a significant decline from the 0.3% growth recorded in the first quarter.
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