BERLIN The mood among German consumers rebounded more than expected heading into May to reach a three-month high, a survey showed on Thursday, citing confidence that Europe's largest economy is heading in the right direction and a dip in inflation.
The consumer sentiment indicator, published by the Nuremberg-based GfK institute and based on a survey of around 2,000 Germans, rose to 10.2 going into May.
A Reuters poll had expected the headline figure to rise to 9.9 from 9.8 in the previous month.
GfK said overall economic expectations, propensity to buy and personal income expectations all picked up.
The government has said political uncertainties linked to Britain's vote to leave the European Union and protectionist policies in the United States are clouding the outlook, but the economy appears to be shrugging off those threats at present.
Proposals presented by U.S. Treasury Secretary Steve Mnuchin this week to revamp the tax system did not include a controversial "border-adjustment" tax on imports, a relief for German exporters. [nL1N1HX1RL]
"Despite the uncertainty surrounding the future economic and political direction of the new U.S. president and the Brexit negotiations which are just beginning, German consumers believe that their own economy is nonetheless headed in the right direction," GfK researcher Rolf Buerkl said in a statement.
This optimism has also lifted income prospects among Germans, who feel job security is high.
Income prospects have been given an additional nudge by low inflation, which in March slowed down for the first time in nearly a year. [nB4N1E0023]
Buerkl, who linked the drop in consumer prices to the price of crude oil, which came under pressure in March despite an agreement among producers to cut production in light of the resumption of fracking in the United States.
A steady upswing of the economy, robust labour market, low interest rates and tamed inflation are increasing a tendency among German consumers to make bigger purchases.
"Employees, who consider that they enjoy good job security because of the excellent employment situation, will be more likely to take a larger risk when making purchases," Buerkl said.
"If their jobs are not at risk in the foreseeable future, the willingness of consumers to make larger purchases, which may require a loan, increases," he added.
The European Central Bank's expansive policy has particularly helped boost private consumption in Germany, which is one of three main growth drivers alongside construction and state spending.
The ECB meets later on Thursday and is expected to keep policy unchanged. Sources told Reuters this week, however, that many ECB ratesetters see scope for sending a small signal in June toward reducing monetary stimulus.
NOTE - The consumer climate indicator forecasts the development of real private consumption in the following month.
An indicator reading above zero signals year-on-year growth in private consumption. A value below zero indicates a drop in comparison with the same period a year ago.
According to GfK, a one-point change in the indicator corresponds to a year-on-year change of 0.1 percent in private consumption.
The "willingness to buy" indicator represents the balance between positive and negative responses to the question: "Do you think now is a good time to buy major items?"
The income expectations sub-index reflects expectations about the development of household finances in the coming 12 months.
The additional business cycle expectations index reflects the assessment of those questioned of the general economic situation in the next 12 months.
(Reporting by Joseph Nasr Editing by Jeremy Gaunt)