Germany’s annual inflation rate fell to 1.8% in December 2025, down from 2.3% in November and below market expectations of 2.0%, according to preliminary data. The reading dropped below the European Central Bank’s 2% target midpoint for the first time since September 2024, marking the second-lowest inflation rate since early 2021. Goods inflation slowed sharply, easing to 0.4% from 1.1% in November, reflecting softer food price growth (0.8% vs. 1.2%) and a deeper decline in energy prices (-1.3% vs. -0.1%). In contrast, services inflation remained stubbornly elevated and unchanged at 3.5%. Core inflation, which excludes volatile food and energy prices, fell to 2.4%, its lowest level since June 2021. Meanwhile, the EU-harmonized CPI eased to 2.0% in December, its lowest level since July and below forecasts of 2.2%. For the full year 2025, national inflation averaged 2.2%, while harmonized inflation averaged 2.3%.