May 30 (Bloomberg) -- Retail sales in Germany, Europe's largest economy, unexpectedly dropped for a second consecutive month in April as faster inflation left consumers with less money.

Sales, adjusted for inflation and seasonal swings, fell 1.7 percent from March, when they dropped 2.2 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.6 percent, the median of 29 estimates in a Bloomberg News survey shows. In the year, sales fell 1 percent.

The German economy is losing momentum as faster inflation erodes consumers' spending power just as companies grapple with a global slowdown. The country's economy had grown the most in 12 years in the first three months of the year, driven by investment and exports. At the same time, consumers increased savings.

``The report was a clear disappointment,'' said Matthias Rubisch, an economist at Commerzbank AG in Frankfurt. ``At the moment, we can't expect anything from consumption. We have to hope for oil prices to recede a little bit.''

The euro dropped as low as $1.5483 after the release from $1.5531 trading at $1.5506 at 8:13 a.m. in Frankfurt. The single currency has appreciated 6 percent against the dollar this year.

German consumer prices increased more than forecast in May as oil prices surged. Inflation accelerated to 3 percent from 2.6 percent in April. The European Central Bank aims to keep inflation just below 2 percent.

Oil prices doubled over the past year and breached a record $135 a barrel on May 22.

Rising Prices

Henkel AG's Chief Financial Officer Lothar Steinebach said this month the world's biggest glue maker will keep charging more for both adhesives and washing powder, helping offset surging raw material costs.

German consumer confidence fell more than economists forecast in June, Nuremberg-based market-research company GfK said this week. ``Inflation overshadowed everything else,'' said Rolf Buerkl, an economist at GfK. Still, Buerkl expects ``a recovery in consumer spending later this year provided there are no more negative surprises. The economy is still in robust shape.''

Some companies are raising salaries. German wages increased the most in 12 years in January, the statistics office said last month. Germany's Ver.di union in March negotiated a settlement for as many as 2.1 million public-sector staff that is worth 8.9 percent over two years.

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

Last Updated: May 30, 2008 02:28 EDT