Christmas sales are more important than ever for German shops

Retail sales across the country fell by 4.4% on an annual basis last month, and by 2.7% compared with September, the latest Bundesbank survey said.

These are the worst figures since January, when sales were hit by a 3% rise in value added tax.

German inflation is at a near 14-year high, led by oil and food prices.

Concern about these higher costs appears to be overshadowing increased optimism in the German job market.

Figures on Thursday showed that the jobless total fell this month to its lowest level in more than a decade.

'Not pleasing'

Germany's HDE retail trade group said earlier this week that retail sales could fall by as much as 2% in 2007.

"This year, rising food and energy prices have weakened purchasing power," said HDE President Josef Sanktjohanser.

"Christmas shopping is, for us, more important than ever because this year retail sales were not all that pleasing."

German economic growth is expected to slow to 2.5% this year, from 2.9% in 2006.