Jan. 31 (Bloomberg) -- Retail sales in Germany, Europe's largest economy, unexpectedly fell for a second month in December as oil prices rose, sapping consumers' purchasing power.

Sales, adjusted for inflation and seasonal swings, declined 1.4 percent from November, the Federal Statistics Office in Wiesbaden said today. Economists predicted a gain of 0.8 percent, the median of 24 estimates in a Bloomberg News survey showed. In the 12 months through December, retail sales rose 0.7 percent.

Germany depended on exports and investment for growth last year as unemployment near the highest since World War II crimped household consumption. While economic growth is gathering pace, rising oil costs are leaving consumers with less money to spend, hampering the economic pickup.

``Private consumption remains the weak link in the economy,'' said Ralph Solveen, an economist at Commerzbank in Frankfurt. ``If oil doesn't rise any further and the labor market stabilizes, we could see consumption pick up a bit. But there won't be a drastic turnaround; Germany won't get its sustainable recovery.''

Crude oil prices have risen 19 percent since Dec. 1, approaching the record of $70.85 a barrel set on Aug. 30. The price was $68.47 today.

Jobless Increase

The Federal Statistics Office said higher energy costs and people saving more for their retirement were possible reasons for the decline in retail sales.

The government may raise the retirement age by two years to 67 by 2023, 12 years earlier than it currently plans, Labor Minister Franz Muentefering told Focus magazine Jan. 28.

Unemployment unexpectedly jumped in January for the first month in four as companies brought forward job cuts before a law goes into effect tomorrow that reduces benefits for those newly out of work.

The number of jobless, adjusted for seasonal swings, rose by 69,000 to 4.7 million, the Federal Labor Agency in Nuremberg said today. Economists expected a drop of 20,000, according to the median of 26 forecasts in a Bloomberg News survey. The unadjusted jobless total rose above 5 million for the first time in 10 months. The adjusted unemployment rate increased to 11.3 percent from 11.2 percent. That's still down from a postwar record of 12 percent reached in March last year.

Confidence

The government last week raised its 2006 growth forecast to 1.4 percent from a previous 1.2 percent estimate.

``Increasingly we're seeing strong company performance, and that's starting to generate improved job prospects and feeding through to consumers,'' said James Nixon, an economist at Barclays Capital in London. ``That should lead to a distinct turnaround in sentiment this year.''

Consumer optimism climbed to the highest in eight months in January, the GfK market research company said Jan. 27. GfK expects consumption to increase 0.5 percent this year. ``Everything points to 2006 being better for consumption than last year,'' GfK economist Rolf Buerkl said.

The HDE retail association said Jan. 5 German retail sales may rise in 2006 as the World Cup soccer tournament, which takes place in Germany in June and July, adds around 2 billion euros in revenue.

Adidas-Salomon AG, the world's No. 2 maker of sporting goods, lifted earnings forecasts Nov. 3 after it won orders for the World Cup. Retailers' optimism has increased for three months and business confidence is at the highest in more than five years, the Ifo institute in Munich said Jan. 25.

An increase in value-added sales tax to 19 percent from 16 percent in January 2007, agreed by Germany's new coalition government in November, may also boost retail sales this year as consumers bring forward purchases.

ECB Rates

The European Central Bank may raise interest rates should an increase in consumption boost inflation in the dozen euro nations. The bank lifted it rate for the first time in five years Dec. 1.

ECB President Jean-Claude Trichet noted Jan. 12 that consumer confidence in the euro area ``is improving.'' Policy makers next meet on Feb. 2 in Frankfurt to decide on interest rates.

Investors are betting the ECB will raise rates to 2.5 percent from the present 2.25 percent by the end of the first quarter, and to at least 2.75 percent by the end of 2006, futures trading suggests. The implied yields on the three-month contracts for March and December settlement were 2.70 percent and 3.17 percent respectively today.

The contracts settle to the three-month euro area inter-bank offered rate for the euro, which has averaged 15 basis points more than the ECB's benchmark rate since the currency's launch in 1999.

To contact the reporter on this story: Matthew Brockett in Frankfurt at mbrockett1@bloomberg.net.

Last Updated: January 31, 2006 04:22 EST