Moderate inflation, upbeat shoppers bode well for German consumption

FILE PHOTO - Shoppers look for goods in a Karstadt hot deal department store in  in Frankfurt/Oder
FILE PHOTO – Shoppers look for goods in a Karstadt hot deal department store in Frankfurt/Oder October 24, 2014. REUTERS/Fabrizio Bensch/File Photo

January 30, 2019

BERLIN (Reuters) – German inflation remained moderate in January and consumer morale improved unexpectedly heading into February, boding well for domestic demand, which the government expects to be the sole driver of growth this year.

Data released on Wednesday by the Federal Statistics Office and the GfK consumer research group suggested that household spending will cushion the negative impact of weaker trade on Europe’s largest economy in light of tariff disputes and Brexit.

German consumer price inflation, harmonized to be comparable with inflation data from other European Union countries, remained unchanged at 1.7 percent year-on-year, the Federal Statistics Office said.

KfW economist Joerg Zeuner said the slower rise in overall prices meant a gain in purchasing power for German consumers, though this alone would probably not be enough to offset growing concerns about the state of the economy.

The Economy Ministry said on Wednesday that headwinds from trade disputes and Britain’s exit from the European Union would further slow the German economy this year after it expanded at the slowest rate in five years in 2018.

“At least, both private consumption and investment are withstanding the growing pessimism quite well for the time being,” Zeuner said.

In another positive sign for household spending, a GfK survey showed that consumer sentiment picked up unexpectedly heading into February as shoppers became more optimistic about their incomes and were more willing to buy.

Presenting the government’s reduced growth forecast of 1.0 percent for this year, Economy Minister Peter Altmaier said domestic demand would remain the sole driver of growth in 2019, helped by an expected jump in net wages of 4.8 percent.

The government expects imports to rise by 4.0 percent this year, outstripping a predicted increase in exports of 2.7 percent. This means that net trade will be holding back overall economic growth by 0.3 percentage points.

(Reporting by Michael Nienaber; Editing by Catherine Evans)

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