German states will release their Consumer Price Index (CPI) figures for July today. Current inflation in Germany is just above 2%, which worries the European Central Bank (ECB). The overall annual inflation is at 2%, while core inflation is at 2.7%, showing a slight decrease. For July, the overall annual inflation is expected to drop to 1.9%. Analysts are particularly interested in the core inflation figure since it influences the ECB’s decisions ahead of the September meeting. Currently, there is a roughly 93% chance the ECB will not change interest rates.

Influence of Economic Spending

Looking forward, Germany’s inflation is being evaluated alongside the government’s €500 billion spending plan. This spending is not likely to cause an immediate rise in inflation but may improve productivity and other economic factors. Today’s data will probably not change the ECB’s outlook during the summer. Today’s schedule includes releases from several regions: North Rhine Westphalia, Hesse, Bavaria, Baden-Württemberg, and Saxony at 08:00 GMT, followed by Germany’s national preliminary figures at 12:00 GMT. These releases might come out a bit earlier or later than expected. We’re closely watching the German state inflation numbers today since they will set the tone for the national data later. German headline inflation recently rose to 2.3% in June 2025, so the market hopes for a decrease to the expected 1.9% for July. However, the main concern remains the core inflation, which has been stubbornly high at 2.8%, worrying the ECB.

Impact on Derivative Traders

This situation presents an opportunity for derivative traders to look for volatility. If the market is too relaxed about the ECB’s likely decision, options related to the euro might be undervalued. A surprise, especially if core inflation is higher than expected, could lead to a rapid shift in interest rate expectations and increased volatility. Currently, the market prices a 93% chance the ECB will keep its deposit rate at 3.25% during the September meeting. This reflects the central bank’s tough position, trying to balance persistent inflation against slow economic growth in the region. A strong inflation number today could easily change those odds and affect short-term interest rate futures. From our perspective in 2025, the severe inflation spike from 2022 to 2023 left a significant impact on ECB policymakers. This recent history makes them highly sensitive to core inflation pressures, demonstrating their willingness to risk slower economic growth to maintain inflation control. Any hint that core prices aren’t declining will strengthen their cautious approach. Long-term government spending plans, like Germany’s €500 billion fund, add another factor for longer-dated contracts. While this spending is not expected to drive inflation up soon, its aim is to increase productivity. Successful rollout could alter Germany’s long-term growth and inflation patterns over the next few years. Ultimately, the key focus today is the core inflation data rather than the headline figure. Any significant deviation from expectations in the core reading will be a major driver for market movements in the coming weeks. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now