Significantly, the weak October retail sales figures came after Germany’s GfK Consumer Climate Report, which signaled a sharp pullback in private consumption. The report highlighted tumbling income expectations and rising consumers’ willingness to save, driven by concerns about a weaker labor market.
The latest retail sales and consumer sentiment figures paint a gloomier picture of the German economy.
Impact on ECB Monetary Policy
The sharp decline in retail sales and potential for steeper falls in November may fuel speculation about a 50-basis point December ECB rate cut. Deteriorating consumer spending may dampen demand-driven inflation, supporting a more dovish ECB rate path.
However, November’s German inflation figures could temper expectations for a 50-basis point December rate cut. The annual inflation rate increased from 2.0% in October to 2.2% in November, exceeding the ECB’s 2% target. This may empower the hawks to combat calls for a 50-bps rate cut despite weak private sector PMIs, retail sales, and consumer sentiment figures.
The mixed signals will put greater emphasis on the Eurozone’s inflation data.