German retail sales plunge in September, heaping pressure on ECB

• Retail sales in Germany dropped 2.0% in September from the previous month, versus an expected rise of 0.4%.
• The prior month's reading was revised down to +1.2% from the initially reported +1.3%.
• On an annual basis, September retail sales fell 2.3%.
• The previous year-on-year figure was revised to -0.3% from -0.4%.

German economic data consistently misses expectations, almost as predictably as death and taxes. This time, retail sales saw a large shortfall as consumption softened across all categories.

By sector, petrol station sales declined 3.4% month-on-month, food sales dropped 1.4%, and non-food retail fell 2.4%. This is hardly evidence that German households are coping with the rising inflation across Europe, particularly in the second half of the year.

One potential positive is the temporary fuel tax relief, effective from October to December, which might support petrol station sales. The effect remains to be seen.

However, the broad-based decline indicates that the German consumer is struggling. Households are clearly feeling the impact of higher prices, reflected in their spending behavior.

This adds to the ECB's difficulties as it tries to balance slowing growth and rising inflation in the euro area as 2022 ends. Policymakers may still manage a rate hike in December, but if the current trend continues, further tightening will be hard to justify, especially if Europe's largest economy faces trouble.