Consumers in Germany had their confidence dented by fears of inflation taking root in Europe's biggest economy and the rising euro, a survey released Friday found, casting more concern about Germany's economic rebound.
The GfK research group said its forward-looking consumer climate indicator for November stood at 4.9 points -- down from a revised 6.7 points in October, its third monthly drop. Analysts surveyed by Dow Jones Newswires had forecast that the index would slip to just 6.3 points.
The group said the that prime reason for the drop was what it called the "surprising emergence" of fears about inflation in Germany, a concern that is shared with the European Central Bank which would move to adjust interest rates if it rose above 2 percent.
"The drastic price increases for certain food products, as well as higher energy prices, have influenced the mood of consumers since the late summer," GfK said in its report, adding that higher prices for fuel and electricity have only added to that concern.
But the report said that consumers' economic expectations were only slightly affected, slipping only 1.6 points to 39.1 in October, from September's 40.7, and they remain well above the 6.9 reading in October 2006.
"A plus of 32.2 points over the year-earlier month shows that the level of economic sentiment remains high," GfK said, even if consumers expect the pace of growth to slow slightly.
Alexander Koch, an economist with HVB/UniCredit said the survey illustrated vividly the fears that rising consumer prices can instill.
"The record high oil price and headlines of drastic food price increases aggravate the fears of a strong acceleration in consumer prices and thus a marked loss in purchasing power," he said. "This is reflected in the plunge of income expectations during previous months."
The GfK report came a day after the Ifo Institute reported that German business confidence slipped for a sixth straight month on concerns about the rising euro and its effects on exports.
The Ifo institute said its monthly business confidence index -- a key indicator for the German economy, Europe's biggest -- fell to 103.9 points this month from 104.2 the previous month.
Adding to the clouds over the economic outlook, the German government also cut its growth forecast for 2008 to 2 percent, citing less rosy prospects for the world economy, even as it lifted this year's prediction slightly to 2.4 percent.
Helped in particular by strong exports, Germany has been emerging over the past two years from a lengthy period of economic stagnation -- making German businesses and consumers more inclined to spend.
Worries over the economic outlook have been fed by the U.S. subprime lending crisis, which has rattled markets and generated concern over the health of the American economy; by record-high oil prices and by the strong euro.