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European retail sales unexpectedly declined in February, led by a slump in Germany, the region's biggest economy.

Retail sales in the euro area dropped 0.5 percent, reversing the previous month's increase, the European Union's statistics office in Luxembourg said today. Economists expected a 0.2 percent gain in sales in February, according to the median of 20 estimates in a Bloomberg News survey.

Soaring food and energy prices have pushed inflation in the euro area close to a 16-year high, eroding household purchasing power and undermining consumer confidence. Even unemployment at a record low has failed to spark a pick-up in consumer spending. European consumer confidence remained at the lowest in more than two years in March, the European Commission said on March 31.

This “does little for hopes that the consumer will ride to the rescue of the economy,'' said Howard Archer, chief European economist at Global Insight in London. “Consumers appear to be limiting their spending in the face of higher inflation, tighter credit conditions, higher interest rates'' and concerns that economic growth will slow more than forecast payday advance.

Sales of food and drink fell 0.2 percent in February from the previous month, while non-food sales declined 0.8 percent, the statistics office said. From a year earlier, overall euro- area sales fell 0.2 percent.

Sales in Germany

Retail sales in Germany dropped 1.6 percent in February from the previous month, the statistics office said. Sales in Spain fell 0.2 percent.

A separate report today showed European services growth slowed more than initially estimated in March. Royal Bank of Scotland Group Plc said its index of growth in service industries fell to 51.6 from 52.3 in February, lower than an initial estimate of 51.7 published March 20.

The euro, which has risen 17 percent against the dollar in the last 12 months, fell 0.6 percent to $1.5586 as of 10:22 a.m. in London.

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