Inflation Fears Push German Consumer Sentiment to 5-Year Low

Nuremberg-based GfK, which surveys panels of consumers, forecast an August consumer climate at 2.1 on its own index scale, a marked fall from the July level of 3.6, as households took stock of gloomy financial news and rising fuel prices.

Many householders who were cheered by pay hikes earlier in the year reported fresh worries that inflation would claw back their gains. This drove GfK's separate index of income expectations down to minus 20, the lowest level since August 2004.

But a further index, reflecting interest in buying things, was only slightly down.

"Fear of shrinking purchasing power has led to a renewed reduction in the propensity to buy, although the drop is markedly more moderate than the fall in the indicator for income expectations," GfK said. "Record price increases, triggered primarily by rocketing energy prices, are leaving consumers increasingly fearful of their purchasing power."

In June, consumer prices in the biggest European economy rose by 3.3 percent in June on a 12-month basis, the biggest increase since December 1993.

Employment and wages

The GfK also said that the effects of increased employment and wages had also led to confidence being "demolished" by inflation.

"The positive momentum generated by the job market and the beneficial wage and salary increases compared with last year are consequently being demolished by inflation," GfK said.

Income expectations fell to their lowest level since November 2005, "in light of growing fears of a recession and the fact that the crisis in the financial markets seems far from over," it added.

The GfK consumer climate survey has been conducted since 1980.