A survey by the European Central Bank showed that consumers in the eurozone are bracing for a contraction in the economy and that high inflation will continue to eat away at their incomes next year.

A survey of consumer expectations, used by policymakers as input in their deliberations and published today for the first time, showed that households are beginning to lose faith in the ECB’s ability to return inflation to its 2% target.

A survey conducted in June found that the average consumer expects prices to rise by 5% next year and inflation to be 2.8% over three years.

This compares with expectations for nominal income growth of 0.9% and spending growth of 3.9%, suggesting a large reduction in households’ ability to save.

Consumers also expected the economy to contract by 1.3% in the next 12 months.

By comparison, the ECB expects inflation to average 6.8% in 2022 before easing to 3.5% in 2023 and 2.1% in 2024. He sees growth at 3.7% this year, 2.8% next year and 1.6% in 2024.

The ECB raised interest rates by 50 basis points last month and predicted further hikes in the coming months to combat record high inflation in the eurozone, which reached 8.9% last month.

As one of the reasons for this move, he cited “an entrenchment of… inflationary expectations.”

For the survey, the ECB surveys around 14,000 adults each month in Belgium, Germany, Spain, France, Italy and the Netherlands. These countries account for 85% of the euro area’s GDP and 83.8% of its population.

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