RTTNews - German retail sales rose for the third straight month in May as signs of an economic stabilization raised confidence among households.

Data released by the Federal Statistical Office on Wednesday showed that calendar and seasonally adjusted retail sales rose real 0.4% month-on-month in May after rising 0.5% in April and 0.2% in March. The increase was unexpected as economists were looking for sales to remain flat in May.

However, on an annual basis, sales continued to drop for the fifth straight month in May. The pace of decline accelerated to 2.9% in May from 0.3% in April. In the first five months of the year, retail sales fell 2.3% over the same period a year earlier.

Retail is still proving stable, despite the severe recession, Commerzbank analyst Simon Junker said. This is likely to be largely due to the low inflation rate, which is supporting consumer spending power, Junker added.

Annual consumer price inflation was 0% in May and according to a preliminary report, the rate inched up to 0.1% in June.

Falling prices significantly helped to boost confidence among German households. Latest survey by the market research group GfK showed that consumer sentiment would improve in July. The survey also found that a decrease in inflation is stimulating households' propensity to consume.

However, rising unemployment amid crisis is fading on households' expenditure intentions. Tuesday, the Federal Labor Agency said there were 3.5 million unemployed in Germany in June, up 31,000 from May.

Elsewhere on Wednesday, Germany's HDE retail association said retail sales are expected to fall by 2% in nominal terms in 2009. According to the statistical agency, retail sales rose 0.5% month-on-month in nominal terms in May, but dropped 3.2% annually.

Commerzbank analyst said the slight increase registered in the retail sector for the second quarter is unlikely to change the prospect that Germany's economy has shrunk by nearly 1% again between April and June.

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