German consumer morale should improve next month as steady prices and a new car purchase incentive buoy consumer confidence despite concerns about the economy, the GfK market research group said yesterday.

GfK's forward-looking gauge of sentiment, based on a survey of 2,000 Germans, rose to 2.6 in March from an upwardly revised 2.3 this month. The rise - the sixth in a row - beat the two estimates made by economists polled by Reuters Econde.

The GfK indicator's income expectation component rose to -11 this month from -20.5 in January, and while the "willingness to buy" component slipped to 14.6 from 15.5, this figure remained above the previous year's average of -15.1.

Component readings lag the headline number by a month. "Stable prices and subsidies to scrap old vehicles have helped support the consumer climate," GfK said in a statement.

Consumer incentives, including one measure giving €2,500 to new car buyers who scrap their old vehicles, have given automakers hope that sagging sales will see a reversal this year, but a turnaround has yet to surface in data. As for inflation, Germany's headline annual rate slowed to 0.9 per cent last month from 1.1 per cent in December, and analysts polled by Reuters expected it to ease further to 0.8 per cent this month.

Slowing price rises may not be enough to avert the downbeat scenario German retail association HDE forecasts for this year - a year in which it expects to see retail sales falling one to two per cent in real terms and stagnating at best in nominal terms.

That said, some retailers have brighter outlooks.