Germany's GfK consumer climate survey for July showed slightly weaker consumer sentiment with the index falling to minus 21.8 from minus 21.0 in June. This is the first fall in the index in five months, with respondents noting the impact of higher inflation on real income growth.

The survey's measure of income expectations fell from plus 12.5 to plus 8.2, while its measure of economic expectations dropped more sharply from plus 9.8 to plus 2.5. Respondents reported that their willingness to spend remains low and their willingness to save remains high, citing the impact of high food and energy prices on their ability to make large discretionary purchases.

Today's headline index was weaker than the consensus forecast for minus 20.0. The German RPI measure fell from minus 32 to minus 36 while the RPI-P measure fell from minus 47 to minus 52 indicating that German data continue to come in well below consensus expectations.

After June's surprisingly sharp improvement to minus 20.9 from May's minus 24.2, the consumer climate index is expected to improve slightly further in July to minus 20.0.

GfK's consumer climate survey asks around 2,000 German consumers every month about their assessment of economic conditions. The questions focus on economic and income expectations and consumers' willingness to buy. Having calculated the differences between the positive and negative responses for each question the results are synthesized into a single number that reflects overall consumer expectations for the coming month.

Any insight into household expenditure is vital to understanding how the economy as a whole is shaping up. The monthly correlation between the GfK consumer gauge and actual spending is not especially high but trends in the index can offer useful information about potential underlying developments in consumer behavior. As a forward looking indicator, the GfK index is one input used by analysts in the construction of their forecasts of future German retail sales.