Retail sales in Germany, Europe's largest economy, unexpectedly declined in March for a second month as accelerating inflation left consumers with less money.

Sales, adjusted for inflation and seasonal swings, fell 0.1 percent from February, when they dropped 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a gain of 0.6 percent, the median of 29 estimates in a Bloomberg News survey shows. In the year, sales fell 6.3 percent.

Rising food and energy prices pushed German inflation to 3.3 percent in March, matching a 12-year high reached in November. With companies hiring workers and raising wages, demand may help bolster an economic expansion this year. Consumer confidence unexpectedly increased this month.

``Rainy weather and the high inflation rate likely burdened retail sales in March,'' said Alexander Koch, an economist at UniCredit Markets & Investment Banking in Munich. ``Still, due to higher wages and the robust labor market, consumption will support economic growth a bit this year.''

In the economy of the 15 euro nations, retail sales declined for a second month in April, the Bloomberg purchasing managers' index showed April 29. German retailers' gross margins contracted for a 16th month and about 44 percent of companies said they missed their sales targets in April.

`Positive' Sentiment

Praktiker AG, Germany's second-largest home-improvement retailer, said April 23 that its first-quarter loss widened on weaker demand. Chief Executive Officer Wolfgang Werner said that ``the first three months were very bad in domestic sales.''

Still, while German consumer confidence unexpectedly rose to a seven-month high, according to GfK AG, inflation ``must weaken in the next few months'' for sentiment to ``continue its positive development,'' the market-research company said on April 28.

German consumer prices, based on a harmonized European Union method, rose 2.6 percent in April from a year earlier. In Europe, inflation slowed more than economists forecast to 3.3 percent in April from 3.6 percent the previous month, the European Union's statistics office in Luxembourg said April 30.

Rising employment may also help bolster consumer demand and give labor unions more leeway in wage talks. German unemployment declined in April for the 27th month, the Federal Labor Agency said on April 30. The adjusted jobless rate is 7.9 percent.

Some companies are already raising salaries. German wages increased the most in 12 years in January, the statistics office said on April 29. Germany's Ver.di union in March negotiated a settlement for as many as 2.1 million public-sector staff that is worth 8.9 percent over two years.

``The German labor market should lose dynamic in the months ahead,'' said Stefan Bielmeier, an economist at Deutsche Bank AG in Frankfurt. ``We expect a deceleration in growth dynamic in the second half of 2008'' after a ``robust'' first six months.

To contact the reporter on this story: Simone Meier in Frankfurt at smeier@bloomberg.net