Relief for consumers: The inflation rate in Germany fell significantly to 2.6 percent in May. This emerges from an initial estimate by the Federal Statistical Office. In April, consumer prices rose by 2.9 percent compared to the same month last year, the highest since January 2024. The Iran war has driven up energy prices and is slowing the economy.
Heating and fuel costs in this country have risen sharply since March. In May, household energy and fuel cost 6.6 percent more than a year earlier, according to the statisticians’ preliminary calculations.
“Fuel discount served its purpose”
At least the fuel rebate introduced by the federal government dampened price increases in May: around 17 cents less energy tax is charged on a liter of diesel and gasoline from May 1st to June 30th. In April, energy prices in Germany were a good 10 percent higher than in the same month last year.
“The decisive factors were the decline in crude oil prices compared to April and the fuel discount that has been in effect since the beginning of the month,” says Silke Tober, inflation expert at the Hans Böckler Foundation’s Institute for Macroeconomics and Economic Research (IMK). “The fuel discount has served its purpose.” The Bundesbank had recently estimated that the fuel discount would reduce the inflation rate in May and June by around a quarter of a percentage point.
Price increases expected
Economists expect that companies will gradually pass on higher energy, production and transport costs to customers and that prices for food and services will continue to rise. According to data from the Ifo Institute, the proportion of companies planning price increases is high, although it has recently fallen slightly.
In May, people in Germany only had to pay 0.4 percent more for food than a year earlier. In April it was 1.2 percent. Services, which include restaurant visits and travel, also increased in price by 3.1 percent. According to statistics, overall consumer prices fell by 0.2 percent from April to May.
Inflation rate could rise to 3.0 percent in 2026
The longer the war in the Middle East lasts, the greater the uncertainty. This slows down private consumption, which is an important support for the economy. The “economic experts” only expect the German economy to achieve mini-growth of 0.5 percent in 2026.
The Council of Experts expects an annual average inflation rate of 3.0 percent. But it could also be 3.5 percent, as the Federal Government’s advisory committee calculates in its spring report: Given the war in the Gulf, the supply of crude oil and liquid natural gas could be restricted for a long time. Iran has been blocking the Strait of Hormuz for weeks; around a fifth of global crude oil and liquid gas is usually transported through the strait. The Bundesbank expects an increased inflation rate in the coming months.
ECB interest rate hike expected
Higher inflation rates reduce consumers’ purchasing power, which means that they can then afford one euro less. After the price wave as a result of the Ukraine war, inflation leveled off; the inflation rate in Germany was a moderate 2.2 percent in 2025. However, many prices are permanently increased.
The European Central Bank is aiming for a rate of 2.0 percent for the euro area in the medium term. With this mark, the ECB sees its primary goal of ensuring a stable euro and securing people’s purchasing power.
Because the oil price surge caused by the Iran war drove inflation in the euro area to 3.0 percent in April, economists expect the ECB to raise key interest rates in its next decision on June 11th. Higher interest rates would make loans more expensive, which could slow down demand and curb inflation. However, higher interest rates are a burden on the already weak economy.