German consumer confidence has hit a two-year high heading into May, a key survey said Thursday, driven by expectations that higher wages will boost purchasing power in the coming months.

Pollster GfK said its forward-looking survey of some 2,000 people, published jointly with the Nuremberg Institute for Market Decisions (NIM), rose by 3.1 points to minus 24.2 points for May.

The third monthly increase in a row was powered by a sharp jump in income expectations, following a slew of wage agreements clinched by unions recently in sectors across Germany.

Respondents were also moderately more optimistic about the German economy and slightly more likely to make large purchases than a month earlier.

While consumer confidence remains at a low level overall, the latest improvement in sentiment lifts the barometer "to a two-year high", GfK said.

"Wage increases combined with a recent decline in the inflation rate form the basis for increased purchasing power among private households," said NIM consumer expert Rolf Buerkl.

The upbeat reading is the latest in a series of improved indicators to come out of Europe's largest economy, signalling a potential turnaround after a prolonged period of weakness.

The German government on Wednesday slightly raised its economic forecast for this year to 0.3 percent growth, up from 0.2 percent previously, bolstered by increased private consumption.

The government also lowered its 2024 inflation outlook from 2.8 to 2.4 percent.

"The fall in inflation will lead to consumer demand -- people have more money in their wallets again, and will spend this money," Economy Minister Robert Habeck said on Wednesday.