Euro Area Consumers Lift Inflation Expectations to 3.0 Percent for the Year Ahead
Median expectations for inflation over the next 12 months rose to 3.0 percent in August from 2.9 percent in July, and expectations rose at every other horizon too, the European Central Bank said on 18 September. Perceived inflation over the previous 12 months was unchanged at 3.5 percent. Uncertainty about expectations for the year ahead fell, but stayed above the level that prevailed before the conflict in the Middle East began.
| Horizon | August | July |
|---|---|---|
| Perceived, previous 12 months | 3.5% | 3.5% |
| Expected, next 12 months | 3.0% | 2.9% |
| Expected, 3 years ahead | 2.9% | 2.7% |
| Expected, 5 years ahead | 2.5% | 2.4% |
Median rates. Other statistics in the release are the 2 percent winsorised mean unless stated otherwise.
Incomes flat, spending expectations well above them
Expectations for nominal income growth over the next 12 months were unchanged at 1.0 percent, with the bottom income quintile at 1.7 percent and the top at 0.7 percent. Perceived spending growth over the previous 12 months rose to 5.2 percent from 5.1 percent, and expected spending growth over the next 12 months was unchanged at 3.6 percent. On our calculation, consumers expect to spend 2.6 points faster than their incomes grow, against expected inflation of 3.0 percent over the same horizon.
The pattern by income held. Respondents in the bottom quintile again reported higher inflation perceptions and expectations on average than those in the top quintile, and respondents aged 18 to 34 reported lower perceptions and expectations than older ones.
Growth expectations negative, jobs expectations improving
Expectations for economic growth over the next 12 months were unchanged at minus 1.2 percent. The expected unemployment rate 12 months ahead fell to 11.0 percent from 11.2 percent, against a perceived current rate of 10.5 percent, which the release says suggests a broadly stable labour market outlook. The bottom income quintile expected the highest rate 12 months ahead at 13.4 percent, the top quintile the lowest at 9.4 percent.
| Measure | August | July |
|---|---|---|
| Expected economic growth, next 12 months | -1.2% | -1.2% |
| Expected unemployment rate, 12 months ahead | 11.0% | 11.2% |
| Expected nominal income growth | 1.0% | 1.0% |
| Expected nominal spending growth | 3.6% | 3.6% |
Perceived current unemployment rate, 10.5 percent.
Housing and credit steady
Consumers expected the price of their home to rise 3.4 percent over the next 12 months, unchanged from June in the release’s wording, with the lowest income quintile at 4.0 percent and the highest at 3.2 percent. Expectations for mortgage interest rates 12 months ahead were unchanged at 4.9 percent, ranging from 4.4 percent in the top quintile to 5.7 percent in the bottom. The net share of households reporting tighter access to credit over the past 12 months fell compared with July, as did the net share expecting tighter conditions ahead.
Why it matters: For the euro area, the significant line is the 3 year figure at 2.9 percent, because expectations that far out are the ones policymakers watch for signs that a price shock is settling in. It rose 0.2 of a point in a single month on our calculation, and the 5 year figure rose as well, while consumers’ own view of past inflation did not move. Growth expectations remain negative and income expectations are at 1.0 percent, so on our reading the combination does not point to household demand as the obvious driver of the rise in expectations.
Outlook: The September results are scheduled for 23 October. Fieldwork for the August wave ran from 6 to 24 August. The survey currently covers around 19,000 adult consumers in 11 euro area countries.
Sources: European Central Bank.
