Consumers: Retail sales are falling

The reluctance of consumers in Germany to spend more and more is affecting the retail trade.

Consumers: Retail sales are falling

The reluctance of consumers in Germany to spend more and more is affecting the retail trade. In March, the price-adjusted sales of companies shrank sharply compared to the same month last year. In the food trade, the Federal Statistical Office calculated the strongest drop in revenue for almost 30 years. Economists warn that poor people seem to be saving even more on food. However, given the recent major loss of purchasing power among the population due to inflation, there is hope for improvement.

According to provisional calculations by the Wiesbaden statisticians, in March the German retail trade realized a price-adjusted (real) 2.4 percent and nominal 1.3 percent less than in February. Measured against the same month of March 2022, real sales fell significantly by 8.6 percent and, including the sharp rise in prices, by 0.2 percent. There had already been a drop in sales in February.

Many consumers save on groceries

Particularly striking: Price-adjusted sales of food in March fell by a good ten percent within a year. "This is the strongest drop in sales compared to the same month last year since the time series began in 1994," said the statisticians on Tuesday. One reason for this is probably the expensive food, the prices of which rose by more than 22 percent in March compared to the same month last year. Food price inflation was three times higher than the overall inflation rate of 7.4 percent in March. Real sales also fell noticeably in the non-food business and even in the online and mail order business, which has been booming for a long time.

The decline in retail sales reflects the falling purchasing power of private households as a result of the energy price shock and high inflation, commented Sebastian Dullien, Scientific Director of the Institute for Macroeconomics and Business Cycle Research at the Hans Böckler Foundation. Adjusted for purchasing power, sales would not only be below the values ​​from the Corona years, but also noticeably below the level in the spring of the last pre-pandemic year 2019.

"The main concern is that sales of food are also falling significantly. Here it can be assumed that poorer families in particular, who often buy food of poor quality anyway, will now save even more," said Dullien. According to analyses, low-income families are more affected by inflation than higher earners.

High inflation is dampening consumption

Recently there had been criticism of the sharp rise in food prices. According to the credit insurer Allianz-Trade, they are only due to increased raw material costs and energy prices. Allianz Trade inflation expert Andy Jobst spoke of "excessive profit-taking" and signs of insufficient competition in areas with particularly strong price increases, for example producers of dairy products and eggs, but also non-seasonal vegetables and fruits. International consumer goods manufacturers had rejected the allegations.

Persistently high inflation has been weighing on the purchasing power of consumers in Germany for some time and is dampening consumption. In the past year, taking into account consumer prices, wages had fallen by four percent. That was the third year in a row with falling real wages and the sharpest drop since the start of the time series in 2008. This means that people have significantly less money in their pockets.

In May, consumer sentiment recovered slightly, according to the German Retail Association (HDE) in its consumer barometer. Overall, however, people are rather cautious. Private consumption will probably not be a growth driver for the German economy in the coming months. The association had only recently predicted that shops would die due to consumer restraint and rising costs. The HDE fears that around 9,000 shops will close this year. The shoe trade, for example, has major problems.

There could be an improvement in terms of consumer sentiment with high wage agreements. Economist Dullien believes that the loss of purchasing power should decrease in the coming months thanks to stronger wage increases and tax- and levy-free inflation compensation premiums. Then private consumption should also gradually recover. However, the level of 2019 is unlikely to be reached again until 2025 at the earliest: "The energy and food price shock means half a decade lost for consumers in Germany."