The GfK consumer confidence index climbed to 5.9 points from 4.8 points in its survey of around 2,000 people published in March.
All three of the poll’s sub-categories – spending plans, personal income and the outlook for the economy – showed improvement as German unemployment continued to edge lower and workers won substantial pay raises.
“It is striking that all three indicators have gained significantly this month,” a GfK statement said.
Economist Alexander Koch at UniCredit Markets noted: “The first important wage settlements of this year, which brought employees markedly higher wage increases than in previous years, apparently improved sentiment among German consumers despite the increasing headwind for the German economy.”
The poll was released after other business surveys suggested a long-expected weakening of economic activity due to an international banking crisis, high oil prices, slumping US growth and an ever stronger euro might be near at hand.
The Ifo index of business sentiment gave clear evidence last week that German industry could be entering a period of weaker activity. GfK said conditions had improved because a long awaited pick-up in consumption had finally come through.
Koch warned, however, that this was unlikely to “be the start of a spending spree by Germany consumers. The elevated level of inflation, which is likely to persist in the short term, still weighs heavily on the purchasing power of private households.”
GfK also noted that income expectations remained below average and said an element of residual uncertainty showed “that Germans will think twice before abandoning consumer reticence.”
German authorities have been counting on a pick-up in household spending to keep economic growth on track this year. Until now however, consumers have been put off by rising inflation, which hit a record 3.6 percent in March in the euro zone.
“For the consumer climate to develop positively in the long run, the pressure of inflation would need to drop back again over the coming months,” GfK said.