ECB consumer survey signals firmer inflation expectations and weaker euro area growth outlook

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ECB survey: inflation and growth outlook

Highlights

ECB September survey shows median 12-month inflation expectations rising to 3.1% from 3.0%, with five-year expectations unchanged at 2.5%.
Households now expect euro area economic growth over the next 12 months at -1.5%, down from -1.2% in August, and higher unemployment at 11.3% versus 11.0%.
Consumers expect their home's price to rise 3.5% in the next 12 months, with mortgage interest rate expectations steady at 4.9% and anticipated tighter credit conditions.

September survey shows mixed household expectations

As reported by European Central Bank, median consumer perceptions of inflation over the previous 12 months rise to 3.6% in September from 3.5% in August, while expectations for inflation over the next 12 months edge up to 3.1% from 3.0%. Expectations for inflation three years ahead remain unchanged at 2.9%, and five-year expectations stay at 2.5%, while uncertainty about 12-month inflation expectations increases slightly and remains above the level seen before the start of the conflict in the Middle East.

Respondents in the bottom income quintile continue to report higher inflation perceptions and expectations on average than those in the top quintile. Younger respondents aged 18 to 34 also continue to report lower inflation perceptions and expectations than older age groups.

Expectations for nominal income growth over the next 12 months increase to 1.1% from 1.0%, and expected spending growth rises to 3.7% from 3.6%. Perceived spending growth over the previous 12 months also increases, to 5.3% from 5.2%, with lower-income households again showing stronger income growth expectations than higher-income households.

Growth, labour and housing outlook diverge

Households turn more cautious on the economy in September, with expected economic growth over the next 12 months falling to -1.5% from -1.2% in August. At the same time, the expected unemployment rate 12 months ahead rises to 11.3% from 11.0%, although consumers still see the future jobless rate as only slightly above the perceived current rate of 10.6%, pointing to a broadly stable labour market outlook.

Income differences remain visible in labour market expectations, with households in the bottom income quintile expecting unemployment of 13.6% in 12 months, compared with 9.7% among the top quintile. In housing, consumers expect the price of their home to rise by 3.5% over the next 12 months, up from 3.4% in August, while expectations for mortgage interest rates in 12 months remain unchanged from July at 4.9%.

Lower-income households continue to expect stronger home price growth, at 4.0%, and higher mortgage rates, at 5.7%, than higher-income households, which expect 3.2% home price growth and 4.4% mortgage rates. The net share of households reporting tighter access to credit over the previous 12 months increases from August, and the net share expecting tighter credit conditions over the next 12 months also rises.

In our earlier article on Mario Draghi’s warning about the policy trade-off between inflation control and long-term growth, we explained his view that keeping rates above growth for too long can worsen debt dynamics and ultimately raise inflation risks. We also noted his call for central banks to keep rates no higher than necessary to stabilize medium-term inflation, while relying on pro-growth measures (such as EU market integration and targeted investment support) to protect productivity and resilience.

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