A vendor offers a buyer change at stall at a farmers market in Hanau, Germany, on Saturday, Aug. 9, 2025.
Alex Kraus | Bloomberg | Getty Images
Increases in unemployment and inflation forged a shadow over the outlook for Europe’s largest financial system, which joins the broader EU bloc in bracing for the total affect of newly applied U.S. tariffs.
German inflation rose by a higher-than-expected 2.1% in August, preliminary information confirmed Friday, exceeding the two% expectations of analysts polled by Reuters. Inflation, which is harmonized for comparability throughout the euro zone, had risen by a cooler-than-expected 1.8% in July.
Germany’s core inflation, which excludes meals and power costs, was unchanged from the earlier month at 2.7% in August, the nation’s statistics workplace Destatis mentioned.
Yields on German authorities bonds, often called Bunds, have been little modified shortly after the information launch, which got here on the identical day that labor office figures confirmed the variety of unemployed individuals jumped to three.025 million in August, to a charge of 6.4%.
The broader euro zone inflation studying, due Tuesday, will provide additional perception into the financial affect of U.S. President Donald Trump’s tariff insurance policies, which have hit numerous European sectors in latest months.
The U.S. and EU struck a trade agreement in July, together with a 15% tariff charge on many EU items exported to the U.S. Fresh details launched earlier this month urged that this blanket charge will even be utilized to some hotly contested sectors like prescribed drugs — however essential questions nonetheless stay unanswered, leaving businesses on edge.
The tariffs are broadly anticipated to drive costs larger in the U.S., however their impact on prices elsewhere is much less clear.
Germany’s extremely export-driven financial system has lengthy been hovering close to the flatline. The nation’s gross home product expanded by 0.3% in the primary quarter, earlier than contracting by 0.3% in the next interval, in accordance with the newest data from Destatis.
“It remains to be seen how European and US companies will react to US tariffs. While one scenario could see prices falling in the eurozone due to overcapacity and weaker sales in the US, globally operating companies might try to actually increase prices in Europe in order to offset profit-squeezing in the US,” mentioned Carsten Brzeski, world head of macro at ING, in a observe.
“A rather domestic theme will be the cooling of the German labour market, which should take away wage pressures and consequently inflationary pressures,” he added, noting that the inflationary hike in Germany now weakens the case for the European Central Bank to press forward with an rate of interest reduce at its September assembly.
The ECB most just lately opted to carry its key rate unchanged at 2% throughout its July assembly.