German inflation dips to cooler-than-expected 1.8% in July

German inflation fell more than expected to 1.8% in July, data from statistics agency Destatis showed Thursday.

Economists polled by Reuters had anticipated inflation to dip to 1.9%. July's reading compares to the 2% print recorded in June, which brought the German inflation rate in line with the European Central Bank's target.

The figures are harmonized across the euro zone to ensure comparability. Euro zone inflation data is due later this week, with the reading forecast to come in at 1.9%.

So-called core inflation, which strips out food and energy costs, came in at 2.7% in July, unchanged from the previous month, the data showed. Meanwhile the closely watched services inflation print eased further from 3.3% in June to 3.1% in July.

Carsten Brzeski, global head of macro at ING, said in a note on Thursday that the latest data suggested Germany was “currently experiencing a process of disinflation.” Headline inflation is now expected to remain below, but close to the 2% mark, he added.

Inflation figures are being watched closely by economists and analysts as they assess the impact of U.S. President Donald Trump's tariff policy. Several sectoral tariffs, as well as temporarily reduced reciprocal duties have already been in effect in recent months.

Last week the European Union and U.S. came to an agreement that includes EU goods being hit with 15% tariffs. While the levies are widely expected to affect prices in the U.S., it is less clear if, and how, inflation elsewhere may be affected.

“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 overcapacities 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,” Brzeski said.

Thursday's inflation figures come just after Destatis on Wednesday published a preliminary reading of Germany's second-quarter gross domestic product. The economy shrank slightly by 0.1% in the period, marking a decline from the 0.3% growth recorded in the first quarter.