Rising energy commodity prices weigh on German consumer sentiment

Consumer confidence in Germany, measured using the so-called Consumer Climate Index, fell sharply month on month. The decline was driven by rising energy commodity prices amid escalating tensions in the Middle East. The index is used to track trends in macroeconomics, retail and the automotive industry, and is one of Europe’s most important leading indicators.

Germany’s consumer sentiment index, published by the Nuremberg Institute for Market Decisions (NIM) and GfK, fell to -30.6 in its forecast for October, its lowest level since May. This was down from -26.8 in September. Although a decline was expected, the figure was surprisingly low, as economists had initially forecast only a slight drop to -27.2.

“Most households expect high energy prices to reduce their purchasing power,”said Rolf Buerkl, head of surveys at the Nuremberg Institute. “As a result, they are more pessimistic about their income prospects over the next twelve months.”

Expectations for personal income fell to their lowest level since April, shortly before the introduction of a temporary fuel tax cut by the German government in response to the start of the war in Iran. The willingness to save also rose to 21.5 points, a level last seen during the 2008 financial crisis. People would rather set money aside than spend it.

Oil prices surged at the start of this month after the United States resumed its attacks on Iran. Higher energy commodity prices across the eurozone in recent months were among the factors that led the European Central Bank to raise its key interest rate.

German consumer sentiment has been on a markedly negative trend since 2022, when Russia launched its invasion of Ukraine. This was reflected in a sharp rise in energy commodity prices, which affected both European businesses and households.

Confidence has fallen despite the fact that the Ifo Institute’s business climate index rose to its highest level in more than three years. A group of leading German economists also nearly doubled its forecasts for economic growth this year compared with its estimates in March.

“German consumers do not share the optimism about the economy’s resilience that other leading indicators have recently been suggesting,” said Carsten Brzeski, an economist at ING. “At least someone is reacting to the sharp rise in energy prices and interest rates.”