Eurozone retail sales rise 0.2% as consumer demand shows resilience

Eurozone consumers kept spending in May despite elevated inflation and lingering geopolitical uncertainty, signaling the bloc's economic recovery may be more durable than feared.

Eurozone retail sales rebounded 0.2% in May from a 0.3% decline in April, data from Eurostat showed Monday, as stronger food and non-food purchases offset a drop in automotive fuel demand. The headline figure slightly missed the 0.3% consensus estimate from economists polled by the Wall Street Journal.

"The rise in May sales suggests consumers kept spending despite the drop in confidence and real incomes over the second quarter," said Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics.

Sales of food, drinks and tobacco led the increase, alongside non-food products excluding automotive fuel. Fuel volumes fell 0.5% after tumbling 3.6% in April. The eurozone unemployment rate held at a record low of 6.2% in May, supporting household incomes even as broader economic uncertainty persisted. The euro edged higher against the dollar following the release, trading near $1.1420, though gains were capped by the slight miss versus consensus.

The data arrives as the European Central Bank navigates a delicate policy path. Inflation slowed to 2.8% in June from 3.2% in May as energy prices eased, but remains above the ECB's 2% target. ECB President Christine Lagarde said last week that the central bank's recent rate increase reflected staff projections showing inflation staying above target through 2028. With energy prices falling rapidly in June, real incomes are expected to return to growth in the third quarter, Allen-Reynolds said, suggesting any weakness in household consumption is likely short-lived.

Consumer confidence edged higher in June after falling to a three-year low in April in the wake of the Iran conflict. The recovery coincided with a retreat in oil and natural-gas prices as tensions between the US and Iran eased, reducing pressure on household budgets. If energy prices remain contained, the outlook for consumer spending in the second half of the year could improve further.

Even so, many households continue to face financial strain. Economists expect wage growth to moderate this year, while recent price increases have eroded part of the gains in purchasing power, leaving consumers cautious about discretionary spending. The pick-up in inflation means the level of real household disposable income likely declined in the second quarter, Allen-Reynolds noted.

The labor market's resilience provides a key buffer. The unemployment rate has held at or near record lows since late 2025, supporting aggregate spending power across the currency bloc. That resilience stands in contrast to the US, where nonfarm payrolls added just 57,000 jobs in June, a steep miss versus the 113,000 consensus estimate, according to data published Thursday by the Bureau of Labor Statistics.

For the ECB, the combination of sticky inflation and resilient consumer demand complicates the outlook for rate policy. Markets are pricing a cautious path forward, with policymakers weighing the risk of prolonged above-target inflation against signs that economic growth is moderating. The last time the ECB raised rates was in June, following staff projections that inflation would remain above 2% through 2028. The next policy decision is scheduled for late July.

This article is for informational purposes only and does not constitute investment advice.