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German consumers cautious as inflation bites

August 29, 2018

While consumers in Europe's powerhouse remain confident about the domestic labor market, they are less likely now to make large purchases. Low interest rates and higher energy prices are taking their toll.

https://p.dw.com/p/33vcS
Shoppers in Germany
Image: imago/Manngold

A monthly, forward-looking poll of around 2,000 people by the GfK research group showed Wednesday that confidence among German consumers had dropped slightly for September.

The GfK's index fell by 0.1 points to 10.5 points after many months of gains. The drop was too small to speak of a trend reversal, GfK researchers said, with consumers "seeing the domestic economy on a solid growth path."

The German economy expanded by 0.5 percent in the April-to-June period. Leading economic institutes expect third-quarter growth to be about the same level.

With unemployment at historic lows, only very few people are afraid to lose their jobs any time soon.

Cautious spending

But while there's little doubt about continued growth, consumers expect to have less money left in their pockets later this year despite wage increases in many sectors.

"Higher energy prices that have driven inflation up to 2 percent may be drowning out the excellent conditions in the labor market and solid wage hikes," GfK suggested.

"People have realized that they don't get any decent yields on their savings in this low-interest environment," GfK economist Rolf Bürkl argued. "Plus they are seeing their money lose purchasing power as consumer prices go up by 2 percent."

Germany's economy keeps growing

hg/ap (AFP, dpa)