German inflation falls to 2.3% in June as fuel tax cut expires and oil prices retreat

Inflation falls unexpectedly in June

German inflation eased for the second straight month in June, according to preliminary data from the Federal Statistical Office (Destatis). The consumer price index rose 2.3 percent compared with the same month a year earlier, down from 2.6 percent in May and 2.9 percent in April. Economists polled by Handelsblatt had expected the rate to hold at 2.6 percent.

The slide exceeded forecasts and pushed the annual rate to its lowest since early 2024. On a monthly basis, prices fell 0.3 percent from May.

What drove the decline

Falling global oil prices and the fading impact of the Iran conflict were the main forces. Brent crude, which had spiked above $110 a barrel after the US‑led war against Iran erupted in late February, has since retreated to around $73. That sharp decline fed directly into fuel costs.

The unexpectedly sharp drop in inflation is good news for consumers.

Energy price inflation slowed dramatically, to 3.4 percent in June from 6.6 percent in May and over 10 percent in April. Fuel – specifically Super E10 petrol – was roughly 6 percent cheaper than in May, while diesel fell by almost 9 percent. The ADAC data also reflect the partial pass‑through of the government’s fuel tax cut.

The expiring fuel tax cut

In May, Berlin introduced a temporary reduction of the energy tax on petrol and diesel by about 17 cents per litre, designed to cushion drivers from the oil‑price shock. The subsidy, which runs out today (30 June), is estimated by the Bundesbank to have shaved about a quarter of a percentage point off headline inflation. With its removal, most analysts expect a bump in the July rate.

Inflation fell in June mainly because of the lower oil price. In July it should rise again as the fuel discount disappears.

Separately, food prices edged up 0.4 percent on the year, unchanged from May. Services inflation held at 3.1 percent, while the core rate – excluding food and energy – stayed at 2.5 percent.

Regional and component picture

Regional data show variation within the country. North Rhine‑Westphalia and Baden‑Württemberg recorded the lowest June rates at 2.1 percent, while Berlin posted 2.2 percent. Bavaria, with 2.5 percent, remained slightly above the national average. Import prices, however, rose at their fastest pace since late 2022, and economists warn that companies may pass through higher energy and transport costs with a lag, keeping upward pressure on food and services.

Outlook and ECB policy

The easing of inflation offers some respite for the European Central Bank, which raised its key rate in June for the first time in nearly three years – from 2.0 to 2.25 percent – to counter the oil‑price shock. With core inflation still above the two‑percent target and the fuel‑discount expiry looming, policymakers have signalled that more hikes could follow. ECB board member Isabel Schnabel recently pointed to further tightening.

The inflation wave triggered by the Iran war appears to be subsiding. This could allow the ECB to forgo another rate rise in July.

The German council of economic experts expects average inflation of 3.0 percent for the full year 2026, up from 2.2 percent in 2025, as the war’s indirect effects continue to weigh on consumer sentiment and spending.