The European Commission last month predicted that euro zone inflation would jump more than forecast to 3.2 percent this year but ease to 2.2 percent in 2009.

Germany's position as the world's top exporter has for years helped its economy to cope while demand from its own consumers remained depressed. Consumption, according to national accounts, has barely been positive in the last five years with the exception of 2006, when a 0.9 percent rise -- half the average rise in the euro zone as a whole that year -- raised hopes of a renaissance.

Unilever, the consumer goods giant that produces Lipton tea, Domestos bleach and Flora margarine, said last week that sales volumes in Western Europe more or less stagnated in the first three months of 2008, and shrank in Germany.

The year had not got off to a good start in Germany, company executives told investment analysts in a conference call after the publication of the group's first-quarter results.

While the German central bank measure of retail sales showed a fourth monthly increase in March, of 0.2 percent, that measure showed sales actually shrank marginally once cars and sales at car-fuelling stations were stripped out.

In Germany, and much of the rest of Europe, drivers have to spend 40 to 50 percent more now to fill their fuel tanks than at the start of 2002, according to the latest survey data published by Britain's Automobile Association. Unleaded petrol cost an average 0.94 euros per liter back in January 2002 in Germany, and 1.43 euros in April 2008, AA data show. The picture is much the same across the continent.

That is a price that has been steadily rising for years and is not just of the temporary kind that many forecasters hope will be the case for other items of everyday life.

If Annunziata at UniCredit is right, the chances of revival in consumer demand are even further compromised by slowdowns in housing markets, primarily in places such as Spain, Ireland and Britain, but France too to an extent.

The blow so far is nothing as bad as the U.S. housing slump and subprime mortgage market meltdown which have reduced growth to a trickle in the world's biggest economy.

Pending more definitive evidence on the trend and above all the scale of housing market downturns in Europe, there are some tentative signs that banks are becoming less willing to provide credit, as they themselves feel the pinch from a squeeze in the financial markets where they get short-term funding.

According to the latest survey by the European Central Bank, commercial banks which were falling over each other to grant home purchase loans in several European countries not so long ago are getting more stringent.

Jennifer McKeown at London-based Capital Economics says it's too early though to rule out consumer spending as a source of economic dynamism, noting that retail sales have in fact risen in total value, if not in volume, in recent months, and that inflation should soon start to recede.

However, she conceded that a rise in total value of retail sales probably means consumers are paying more to obtain less.

"Indeed, if inflation remains at or close to recent high rates, it might not be long before households are forced to cut back on discretionary spending in order to pay bills or buy food," she said.

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