Retail sales fell 1.5 percent in July from June, the statistics office said, much more than analyst forecasts for a drop of 0.4 percent. In June, retail sales had tumbled 1.4 percent.
The volatile data is calculated from information provided by seven of Germany's 16 states, representing three quarters of the retail sector. Overall the volume of sales generated in German shops in July was around the same as in July 2007 - when adjusted for price rises - but food, drinks and tobacco goods were down 2.9 percent, the statistics office said.
July saw oil hit a record high of over $147 while food prices also rose strongly, squeezing household budgets. The "sharp fall ... adds to the evidence that the economy is weakening," Jennifer McKeown at Capital Economics said.
"The data are very volatile but with the three-month average annual growth rate down at minus 0.6 percent, there is no sign of recovery in the German consumer sector," McKeown said.
The German economy contracted 0.5 percent in the three months to June and economists, in light of the latest poor data, now question whether it could tip into recession, defined as two straight quarters of falling output. Despite the fact that both oil prices, inflation and the euro eased in August, two closely watched surveys last week showed the country's businesses and consumers becoming ever more pessimistic.
Food prices will continue to rise steadily and charges for electricity and gas "have yet to follow in oil's footsteps," Commerzbank economist Ralph Solveen said.