Germans to shop more in May

German retail sales rose by more than expected in May, offering a glimmer of hope that a labour market recovery may be yielding fruit, although the outlook remains clouded by a surge in the cost of living.

Retail sales in Europe's largest
economy rose 1.3 percent on the month in real terms in May, adjusted
for seasonal swings, preliminary Federal Statistics Office data
showed.

On the year sales were up by 0.7
percent, the Office said. Economists had forecast a 0.5 percent rise
on the month, and a 1.0 percent decline on the year in a Reuters poll
.

Ulrich Kater, an economist at DekaBank,
said the May figures were partly a correction to weak sales in April,
and did not obscure the fact that private consumption had fallen
short of expectations since the start of the year.

"Rising food and energy prices are
hitting purchasing power, so real income growth will be much less
than expected," he said.

Sales have repeatedly disappointed this
year, despite the fact the economy has created hundreds of thousands
of new jobs in the past 2-1/2 years and unemployment has fallen
sharply.

According to preliminary data,
inflation in Germany reached its highest level since the end of 1993
in June. Recent polls of consumer sentiment showed the price rises
are taking their toll.

Separate figures showed that adjusted
German employment reached a new record of 40.24 million in May.