High oil prices hit German consumer confidence

Consumer confidence in Germany, which has proven surprisingly resilient to the eurozone debt crisis in recent months, is being increasingly eroded by high oil prices, a poll found on Friday. Market research company GfK released its latest index of household confidence, with the barometer forecast to slip to 5.6 points in May from 5.8 points in April, after already slipping fractionally the previous month, a statement said. “Consumer sentiment in Germany is mixed in April,” GfK said. “While households are more optimistic about the general economic outlook, income expectations are down slightly and the propensity to buy has fallen markedly,” the institute said. The headline consumer confidence index is based on responses from around 2,000 households with regard to their expectations about pay and the economy as a whole in the coming months, as well as their willingness to spend money. “Prices at Germany’s petrol pumps are rising from one record to the next and that is taking its toll on consumers,” GfK diagnosed. “Inflationary fears are on the rise. Consumers are seeing their purchasing power eroded as they are having to spend more and more of their income on energy, and petrol in particular,” the institute explained. “That means they have less money at their disposal for other purchases.” Last week, the key Ifo business climate index rose for the sixth time in a row in April, underscoring the resilience of Europe’s biggest economy to the debt crisis. The economic expectations index edged up to 8.5 points in May from 7.2 points in March. The income expectations index fell to 33.0 points from 34.3 points, while the buying willingness fell to 27.6 points in April from 38.6 points in March. Consumers appear to be coming to the realisation that a recession in Germany can be prevented and the forces boosting the domestic economy are gaining the upper hand, Gfk said, adding that, as a result, economic expectations have risen for the second time in a row. “The German economy continues to show great resilience to the spreading trend towards recession in the euro zone,” GfK said. However, it added that the recent unrest in the stock markets caused by the French elections and the collapse of the Dutch government are not yet reflected in this survey. GfK said companies share the assessment of a robust German economy, as the Ifo business climate index increased for the sixth straight month in April, coming in at 109.9, slightly above expectations at 109.5. But on individual consumer levels, concerns over inflation are increasing and they view their purchasing power as being compromised. As consumers spend an even greater proportion of their income on energy, particularly on petrol and diesel, less remains for other purchases, GfK said. GfK referred to the recently-published spring report by research institutes now assuming that the inflation rate will, on average, probably not drop below the 2% mark as predicted at the end of last year but will be 2.3%. The federal statistics office Destatis said on Thursday that Germany’s preliminary reading showed consumer prices rising 2.0% on the year. GfK said increased price expectations showed a greater effect on consumer tendencies in April, overshadowing the continuous positive effects of the labor market. Inflation Inflation in Germany, the eurozone’s biggest economy, slowed again in April, official data showed on Thursday. The consumer price index rose by 2.0 per cent on a 12-month basis in April, down from the 2.1 per cent recorded in March, the national statistics office Destatis said in a statement on preliminary data. On a monthly basis, the cost of living in Germany rose 0.1 per cent in April from March. Using the Harmonised Index of Consumer Prices, the Eurpoean Central Bank’s inflation yardstick, the cost of living in Germany rose 2.2 per cent on a 12-month basis in April, also slower than the 2.3 per cent recorded in March. The ECB defines price stability as increases in HICP of close to but just below 2.0 per cent. The preliminary inflation data are calculated using consumer price data for six of Germany’s 16 federal states. Final data, based on all 16 states, are due to be published on May 11. Bond German bonds gained, with two-year note yields dropping to a record, as euro-area economic confidence declined and Spain’s prime minister said his country’s ability to fund itself is at risk. Germany’s cost to borrow for two years dropped to as low as 0.089 per cent, almost the same yield as three-month Treasury bills. Ten-year bunds advanced after the country’s inflation rate slowed to a 14-month low, boosting the appeal of fixed-income securities. Spanish bonds fell as Prime Minister Mariano Rajoy said more austerity is needed to cover funding needs and avoid needing a bailout. “The fall in German yields confirms that markets are becoming more nervous again,” said Niels From, chief analyst at Nordea Bank AB in Copenhagen. “The market is worried about the macroeconomic challenges in Spain. Euro-region sentiment surprised on the downside so that confirms that from a macroeconomic perspective nothing is improving in Europe.” Germany’s two-year yield declined three basis points, or 0.03 per centage point, to 0.09 per cent at 5 p.m. London time. The 0.25 per cent note due in March 2014 gained 0.055, or 55 euro cents per 1,000-euro ($1,321) face amount, to 100.29. The 10-year yield fell six basis points to 1.68 per cent. The yield on the three-month US Treasury bill was little changed at 0.086 per cent.