German retail sales fell in March, confounding expectations for an increase, as consumers bought fewer groceries and textiles during a month when inflation surpassed the 2 per cent threshold.

Data published the Federal Statistics Office showed retail sales adjusted for consumer price rises declined by 2.1 per cent month-on-month, and by 3.5 per cent year-on-year.

For the first quarter, sales edged 0.2 per cent higher.

Retail sales, which only include goods and not services such as tickets for movies or sports events, constitute less than a third of domestic household spending in Germany.

Purchases of cars and all filling station purchases are also excluded from the statistics and published separately.

Germany's export-driven economy will increasingly find itself relying on household demand for further expansion as fiscal and monetary stimulus is gradually withdrawn around the world and austerity programmes starts to bite.

"Private consumption will be a crucial pillar of support this year," economics minister Rainer Bruederle said earlier this week.

Last year, it accounted for nearly 58 per cent of German economic activity, down 1 percentage point from 2009 when a government rebate spurred a boom in car sales.

Germany hiked its official annual growth forecast earlier this month, saying rising spending by consumers less worried about losing their jobs marked a turning point that had put economic expansion on a strong footing.

Mr Bruederle forecast more than 80 per cent of Germany's growth this year and next will stem from domestic demand, which includes corporate investment and household spending.

Reuters