Soaring prices hit German consumer confidence

As Europe's largest economy, Germany was one of the euro zone's economic bright spots until recently. However, the latest data showed that severe inflationary pressures are eroding the confidence of German consumers, leading to an increasingly bleak outlook for the German economy. German market research institute GfK announced on Monday that the consumer confidence index fell sharply to 2.1 points in August, the lowest level since July 2003. The index in July was revised down to 3.6 points. GlobalEconomicsINGFinancialMarkets economist Kasten Brzeski (CarstenBrzeski) said that rising prices compressed household budgets, pushing up production costs, which in turn may exacerbate the economic slowdown. The preliminary GfK Consumer Confidence Index for July came in at 3.9 points. The data comes days after Germany's Ifo business climate index, which is closely watched by the market, fell for the fourth consecutive month in July. While the GfK Overall Consumer Confidence Index is forward-looking data for the next month, its three sub-indices -- economic expectations, income expectations and buying propensity -- reflect the current month. All three sub-indices declined for the third straight month in July. The sub-index, which reflects consumers' purchasing intentions for commodities, fell to -26.2 from -23.7 in June. GfK said the survey also reflected consumer concerns that inflation would further erode purchasing power. Annual inflation in Germany rose to 3.3% in June from 3.0% in May, the highest since December 1993. Judging from the July inflation data released by North Rhine-Westphalia, Germany's most populous state, the market further believes that energy price pressures will continue this month and have not peaked. The state's annual inflation rate rose to 3.3% in July from 3.0% in June, mainly driven by oil and gas prices, according to Statistics NRW. The consumer price index (CPI) rose 0.6% in July from the previous month, double the 0.3% increase in June. Germany's important Ruhr industrial coal mining area is located in the state. High fuel and heating oil prices are again to blame for soaring inflation pressures, the state's statistics department said. Household energy prices rose 15.8% in July from a year earlier, and heating oil prices soared 60.1% from a year earlier. Six German states are about to release regional CPI data for July, of which North Rhine-Westphalia is the first and largest state. Germany is due to release preliminary July CPI data on Tuesday afternoon, with regional price surveys in the states providing the basis for national inflation figures.