FRANKFURT: December retail sales in Germany declined for the third month running as rampant inflation ate into consumer purchasing power, according to the Bloomberg Purchasing Managers' Index compiled by UK researcher NTC Economics.

Based on responses from a 500-strong panel of German purchasing managers, the sales index logged a seasonally adjusted reading of 44, compared with 43.6 in November. [A reading below 50 indicates contraction.]

The fall is attributed to cuts in household spending, triggered by rising oil and food prices that hiked German inflation to its highest in twelve years.

Economic growth in the nation is slowing as global expansion ebbs and the euro's rise to a record curtails exports.

Tanja Schweer, manager of a Mueller Cosmetics store in Datteln speaks for many compatriot retailers: "I would be happy to reach last year's figures, but I don't think so. People aren't spending money for themselves. They prefer buying cheaper products."

The downward trend is confirmed by separate data from Germany's IWH Institute, which on December 20 cut its growth forecast for 2008 from 2.5% to 1.7% According to IWH, the German economy probably expanded by 2.5% this year.

And in another dampener, retailers' gross margins posted the sharpest decline since January 2006, with NTC's indicator falling from 42.5 in November to 39.4. this month.

Opines David Kohl, deputy chief economist at Julius Baer Holding in Frankfurt: "The sentiment that everything is becoming more expensive is curbing consumer spending.

"I don't expect consumer demand to become the big growth driver next year. It will be slightly better overall but not buoyant."

Data sourced from (Germany); additional content by WARC staff