The seasonally-adjusted German unemployment rate fell to 7.1 percent of the workforce from 7.3 percent in February, the Federal Labour Office said, the lowest level since records were compiled for a united Germany in 1992.
A total of 3.313 million people were registered as looking for work in March according to that measure, marking the 21st consecutive decline since the middle of 2009 according to UniCredit economist Alexander Koch.
Germany has benefitted from a pick up in global economic activity and labour market reforms that have kept labour costs in line. But a rise in low-wage jobs along with higher prices for energy and food has begun to undermine consumer sentiment, and retail sales fell 0.3 percent on a monthly basis in February according to provisional, price-adjusted figures released by the national statistics office.
The highly volatile retail data also showed a 12-month gain of 1.1 percent but a one-month gain of 1.4 percent initially reported for January was revised down to just 0.4 percent.
Across the 17-nation eurozone meanwhile, inflation climbed to 2.6 percent in March according to European Union data agency Eurostat, from 2.4 percent in February.
It was the fourth successive month that inflation exceeded the European Central Bank's target of just below two percent and underscored warnings that rising prices could put a brake on economic growth.
On Tuesday, the GfK research institute said concern stemming from an unsettled international environment and inflation fears had pushed its German consumer confidence index lower for the first time in 10 months.
Berenberg Bank senior economist Holger Schmieding said: "We look for a more noticeable decline in the next two months. But after a while, the robust labour market will likely offset these external shocks."
The steady trend lower in German unemployment has cut the number of people working shorter hours to 155,000 in January from a peak of more than 1.4 million in May 2009, Schmieding noted.
That figure might climb higher however, if supply problems stemming from the Japanese earthquake and tsunami affect German assembly lines, analysts warned.
Koch nonetheless expected unemployment "to fall below the 3-million mark on average this year, down from 3.24 million in 2010" owing to "a very comfortable order cushion" that had encouraged manufacturing companies to hire workers.
Economy Minister Rainer Brüderle said he was "sure the strong rebound would continue in the coming year and that even more people will be hired."