ECB Survey Shows Slight Rise in Inflation Perceptions and Shifting Consumer Expectations

A recent survey conducted by the European Central Bank indicated a modest increase in how consumers perceive past inflation, alongside notable movements in expectations related to inflation, income, growth, housing and credit conditions. According to the ECB, the median rate of inflation perceived by consumers over the previous 12 months edged up to 3.2 per cent, compared with 3.1 per cent recorded in November. At the same time, median expectations for inflation over the coming 12 months were unchanged at 2.8 per cent.

Looking further ahead, the survey revealed that inflation expectations over a three-year horizon rose slightly to 2.6 per cent, up from 2.5 per cent in the prior month. Expectations for inflation five years into the future also increased, reaching 2.4 per cent compared with 2.2 per cent in November. The ECB noted that uncertainty surrounding inflation expectations over the next 12 months remained stable in December.

Differences across income groups persisted, with respondents in lower income quintiles continuing to report marginally higher perceptions of past inflation and higher short-term inflation expectations than those in higher income brackets, a trend that has been evident since 2023. Despite this pattern, the ECB said that inflation perceptions and expectations were still broadly aligned across income groups. Age-based differences were also evident, as younger respondents aged 18 to 34 continued to report lower inflation perceptions and expectations than those aged 35 to 54 and 55 to 70.

The survey also pointed to softer expectations for income growth. Consumers’ expectations for nominal income growth over the next 12 months declined to 1.1 per cent, down from 1.2 per cent in November. Perceived nominal spending growth over the previous year eased to 4.9 per cent from 5.0 per cent, while expected nominal spending growth for the next 12 months remained unchanged at 3.4 per cent. The ECB attributed this stability to falling spending expectations among lower-income households, offset by rising expectations among higher-income households.

Economic growth expectations showed a slight improvement, with expectations for growth over the next 12 months becoming less negative at minus 1.1 per cent, compared with minus 1.3 per cent in November. Meanwhile, expected unemployment one year ahead increased marginally to 11.0 per cent from 10.9 per cent. Lower-income households continued to anticipate the highest unemployment rate at 13.2 per cent, while higher-income households expected the lowest rate at 9.5 per cent. Overall, consumers expected future unemployment to be only slightly above the perceived current rate of 10.5 per cent, suggesting a generally stable outlook for the labour market.

Expectations related to the housing market strengthened, with anticipated home price growth over the next 12 months rising to 3.6 per cent from 3.4 per cent in November. These expectations varied by income group, standing at 4.1 per cent among the lowest income quintiles and 3.5 per cent among the highest. Mortgage interest rate expectations also edged higher, with consumers forecasting an average rate of 4.7 per cent over the next year, up from 4.6 per cent previously. Lower-income households expected the highest mortgage rates at 5.5 per cent, while higher-income households anticipated the lowest at 4.1 per cent, with the ECB noting that the gap between income groups widened slightly compared with earlier months.

On credit conditions, the survey showed that the net share of households reporting a tightening in access to credit over the past 12 months continued to decline in December. In contrast, the net percentage of households expecting credit conditions to tighten over the next 12 months remained unchanged from October, indicating stable expectations despite recent easing in perceived credit access.

By fLEXI tEAM