Germany's inflation slowed to 2.3% year-on-year in June as oil prices fell, preliminary data from the Federal Statistical Office showed on Tuesday.
In May, consumer prices had risen 2.6% year-on-year, after a 2.9% increase in April - the highest rate since January 2024.
Filling up with petrol, in particular, had become significantly more expensive after the oil price shock caused by the war in Iran.
In June, household energy and fuel cost 3.4% more than in the same month of the previous year, the statisticians said. But that was already far lower than the 6.6% rise in May and the around 10% increase in April.
"Inflation fell in June mainly due to the drop in oil prices," said Jörg Krämer, chief economist at Commerzbank. "However, it is expected to rise again in July as the fuel rebate is being phased out."
With signs of tensions easing in the Iran conflict, oil prices have fallen sharply. Brent crude oil recently dipped to $74 per barrel - roughly the same as it cost before the fighting in the Middle East broke out at the end of February, driving oil prices as high as $110.
Overall, consumer prices fell by 0.3% from May to June, according to the Federal Statistical Office.
Fuel rebate curbs inflation
Silke Tober, an economist at the Macroeconomic Policy Institute at the Hans Böckler Foundation, is optimistic: "If the ceasefire between the US and Iran holds, even the end of the fuel rebate in July is likely to have only a minor impact on inflation due to the now lower crude oil prices."
To ease the burden of fuel costs on consumers and businesses, the German government introduced a fuel rebate in May, reducing the energy tax on diesel and petrol by around 17 cents per litre.
According to Germany's central Bundesbank, the subsidy - which expires on Tuesday - is curbing inflation by around 0.25 percentage points and already significantly reduced the inflation rate in May.
Data from the ADAC motorists' association showed that fuel prices dropped sharply in June compared to May. However, this was not only due to the fuel rebate, which the ifo economic institute said was passed on to consumers only to a limited extent, but also due to the fall in oil prices.
Food prices up slightly
Elsewhere, consumer prices rose. Statistics indicated that people had to pay 0.4% more for food in June than they did a year earlier - the same increase as in May.
Services, which include restaurant visits and travel, rose by 3.1%in June, as they did the previous month.
KfW Research economist Stephanie Schoenwald warned that the favourable trend in food prices could soon come to an end, due to recent high fertilizer prices and the looming El Niño weather phenomenon.
Economists fear that companies will pass on higher energy and transport costs to customers with a delay, causing prices for food and services to rise further.
Import prices have also risen, increasing in May at a rate not seen since the end of 2022. Nevertheless, according to ifo data, fewer companies are planning price increases, buoyed by hopes of peace in the Middle East.
The war in Iran is unsettling consumers and dampening private consumption, which is a key pillar of the economy. The German Council of Economic Experts expects inflation to rise significantly this year to an average of 3%, following a moderate 2.2% in 2025.
Higher inflation rates erode consumers' purchasing power, meaning they can afford less for each euro. Following the surge in prices caused by the war in Ukraine, inflation eased, but many prices have risen permanently.
