German Consumer Confidence Declines as Prices Rise

German consumer confidence fell more than economists forecast as inflation sapped purchasing power, reported The Bloomberg.

GfK AG's index for June, based on a survey of about 2,000 people, declined to 4.9 from a revised 5.6 in May, the Nuremberg- based market-research company said in a statement today. Economists predicted the gauge would fall to 5.7 from an initial May estimate of 5.9, according to the median of 26 estimates in a Bloomberg News survey.

Oil prices have more than doubled over the past year, inflating household energy costs. Investor confidence unexpectedly fell for a second month in May on concern faster inflation, the stronger euro and fallout from the U.S. housing slump will hurt economic growth.

``Inflation overshadowed everything else,'' said Rolf Buerkl, an economist at GfK. ``I still expect a recovery in consumer spending later this year provided there are no more negative surprises. The economy is still in robust shape.''

A sub-index measuring income expectations decreased to minus 4.3 from 10.5 and a gauge of consumers' propensity to spend slumped to minus 20.4 from minus 4.7. A measure of economic expectations slipped to 13.4 from 23.3.

Oil prices surged above $130 a barrel last week. German consumer prices rose 2.6 percent in April from a year earlier after gaining 3.3 percent in March.

The euro has appreciated almost 16 percent against the dollar in the past year, eroding export competitiveness.

At the same time, the world's biggest financial companies have posted at least $380 billion in writedowns and credit losses since the start of last year after the U.S. market for subprime mortgages, aimed at people with poor credit histories, collapsed. That has made banks reluctant to lend, pushing up the cost of credit and roiling financial markets.

German consumers expect a ``cooling of the economy'' after a strong first quarter, when growth accelerated to the fastest pace in 12 years, GfK said in the statement. Still, ``a recession in Germany doesn't seem likely.''

Business confidence unexpectedly increased in May.