Producer prices in Germany increased by 0.1% month-over-month, in contrast to a 1.3% decline year-on-year.
by VT Markets
/
Jul 18, 2025
Germany’s Producer Price Index (PPI) for June has risen by 0.1%, which is slightly above the expected 0.0%. Last month’s PPI was at -0.2%.
Compared to a year ago, producer prices have dropped by 1.3%. This is mainly due to lower energy prices. However, when we exclude energy costs, producer prices have actually increased by 1.3% compared to last year.
Ongoing Pressure
The latest data from Destatis shows a small monthly rise in producer prices, even though markets expected no change. The yearly decline is mainly influenced by falling energy prices. The key figure, which excludes energy costs, reveals a year-on-year increase of 1.3%, indicating continued pressure on prices.
This trend matches recent data from the Eurozone, where services inflation in May 2024 reached 4.1%, even as overall inflation decreased. This supports the cautious stance of ECB officials like Schnabel, who have warned that the final stages of disinflation are the toughest. We believe this suggests the central bank may be less inclined to speed up any planned rate cuts for later this year.
Market Implications and Strategies
For traders in derivatives, this indicates that bets on large ECB rate cuts may be misguided. We should instead consider preparing for higher interest rates that last longer, possibly by selling futures on the Euro-Bund. A relevant example is the 2023 period when markets were often taken by surprise by the central bank’s firm approach, despite decreasing overall inflation.
The ongoing pressure on prices, alongside weak industrial data such as the recent 0.2% monthly drop in German factory orders, poses a stagflation risk. We see value in buying protective put options on rate-sensitive indices like Germany’s DAX, as the expectations for monetary easing could be overly optimistic. Volatility options may also be appealing, as the gap between overall and core inflation data is likely to create market uncertainty.
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by VT Markets
Jul 18, 2025
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