German Retail Sales Rise Amid Signs of Recovery: Economy

German retail sales rose more than economists forecast in May, adding to signs that a recovery in Europe’s largest economy has gathered pace amid record-low interest rates, while inflation accelerated.

Sales adjusted for inflation and seasonal swings climbed 0.8 percent from April, when they fell 0.1 percent, less than originally estimated, the Federal Statistics Office in Wiesbaden said today. Economists had predicted a May increase of 0.4 percent, according to the median of 23 forecasts in a Bloomberg News survey. The consumer price index rose more than forecast, climbing 1.9 percent this month, separate data showed.

German unemployment unexpectedly declined in June, business confidence climbed and ZEW’s investor sentiment index increased, according to reports this month. Consumer price gains nationally probably accelerated for a second month, figures from the Federal Statistics Office are forecast to show today. Chancellor Angela Merkel, who faces elections in September, warned this week that the European Union must improve competitiveness rather than print more money.

“On the basis of sound fundamentals such as the resilient labor market, rising wages and low inflation, German consumers have become more confident,” said Christian Schulz, an economist at Berenberg Bank in London. “Robust domestic demand, of which consumption is an important part, may prove to be crucial for gross domestic product growth this year.”

Expanding Economy

The euro rose as much as 0.3 percent to $1.3079 today and was at $1.3070 as of 2:01 p.m. Frankfurt time. The currency is poised for its biggest quarterly gain since December 2008, gaining 5 percent against a basket of 10 major currencies since the end of March, Bloomberg Correlation-Weighted Indexes show.

The Bundesbank said this month that German GDP should have improved “markedly” this quarter, while warning of a potential slowdown in coming months. It expects growth of 0.3 percent this year and 1.5 percent in 2014.

The German economy is growing as the European Central Bank holds its benchmark interest rate at a record low of 0.5 percent to try to end the euro area’s longest-ever recession.

Germany’s consumer price index, calculated using a harmonized European Union method, rose 1.9 percent in June from a year ago, compared with 1.6 percent in May. Economists forecast an inflation rate of 1.8 percent, according to the median of 24 estimates in a Bloomberg survey.

Inflation in North-Rhine Westphalia quickened to 2.1 percent from 1.7 percent in May, the statistics office said today. Annual price gains accelerated to 1.8 percent in Bavaria, 1.6 percent in Hessen and 1.7 percent in Brandenburg.

The Bundesbank forecasts German inflation will average 1.6 percent this year and 1.5 percent in 2014.

Loose Policy

ECB policy makers including President Mario Draghi said this week they will maintain a loose monetary stance for as long as needed and that the central bank stands ready to act if economic conditions worsen.

Merkel told reporters on June 27 that it’s “not a question of creating more and more pots” of money. “It’s a matter of improving our competitiveness, including in light of global pressures,” she said.

ECB Executive Board member Joerg Asmussen played down a report in Sueddeutsche Zeitung today that said officials are considering a policy of quantitative easing to spur growth in the euro region.

“I can’t rule out that inside a large organization, someone is thinking about something, but that’s not policy-relevant,” he said in an e-mail to Bloomberg News.

Italian Prices

Italy’s inflation rate unexpectedly rose to 1.4 percent this month from 1.3 percent in May, according to a separate release. That was more than the median forecast of 1.3 percent in a Bloomberg survey. Inflation in the euro area accelerated to 1.4 percent in May from 1.2 percent the previous month, the EU’s statistics office in Luxembourg said June 14. Data for June will be published on July 1.

In Asia, Chinese central bank Governor Zhou Xiaochuan tried to soothe concerns that a credit crunch will harm growth in the world’s second-largest economy, saying the nation will maintain market stability and adjust policies at the right time.

The cash squeeze in China, aimed at wringing speculative lending out of the banking system, has increased chances that the government will miss its annual target for economic growth this year, according to Goldman Sachs Group Inc.

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