German Producer Prices Fall by 0.8% Year-on-Year in July

On Tuesday, August 20, German producer prices signaled an improving demand environment, possibly challenging expectations of a September ECB rate cut.

German Producer Prices: Demand Improves

In July, producer prices declined by 0.8% year-on-year, following a 1.6% fall in June.

According to Destatis:

• Energy prices declined by 4.1% in July 2024, compared with July 2023, making it the main contributor to the fall in producer prices.
• Gas prices were down 12.3%, while electricity prices fell by 9.2%.
• Excluding energy, producer prices increased by 0.9% year-on-year in July.
• Month-on-month, producer prices rose by 0.2% in July, following a 0.2% increase in June.

ECB Rate Cut Dependent on Data

Germany’s producer prices may reduce investor bets on a September ECB rate cut. Economists consider producer prices a leading indicator for headline inflation. Improving producer price trends may signal higher demand-driven inflation.

Nevertheless, upcoming inflation and wage growth figures for the Eurozone will likely have more influence on sentiment toward a September ECB rate cut.

EUR/USD Reaction to German Producer Prices

Before the producer price figures, the EUR/USD climbed to a high of $1.10874 before falling to a low of $1.10728.

However, following the producer price report, the EUR/USD rose to a high of $1.10779 before falling to a low of $1.10743.

On Tuesday, August 20, the EUR/USD was down 0.09% to $1.10748.

Up Next

Eurozone wage growth and inflation figures will require investor consideration later in the European session.

Economists expect wage growth to slow to 4.3% in Q2 2024 from 4.69% in Q1 2024. Softer wage growth could reduce disposable income and consumer spending, possibly dampening demand-driven inflation.

However, higher-than-expected inflation numbers could have more impact on the ECB rate path. The ECB is unlikely to cut rates if inflation is trending higher.

According to the preliminary report, the annual inflation rate increased from 2.5% in June to 2.6% in July.

Beyond the numbers, investors should also monitor central bank commentary amid rising expectations of a September Fed rate cut. FOMC voting members Raphael Bostic and Michael Barr are on the calendar to speak. Their insights on the US economy, labor market, and the Fed’s rate path could offer valuable context.