Good news for the ECB: Household inflation expectations have returned to normal
|Despite the slowdown in inflation and the increase in household purchasing power (measured by real gross disposable income), private consumption in the Eurozone remains weak compared to the pre-Covid period.
This sluggishness can be explained by the gap between harmonised inflation and households' perception of price trends. Recent developments in inflation and households' opinions on past price trends show a more marked divergence than before. Since early 2025, the associated opinion balances have not moderated much. This reflects the persistence of inflation in households' perceptions despite the observed slowdown. Households probably still have in mind (at least in part) the cumulative increase over the entire inflationary episode, rather than that over the last 12 months.
However, perceptions of future price developments are more in line with the current level of inflation; with the exception of Italy, they are once again close to their pre-inflationary crisis average. This is a positive sign for the ECB, as better anchoring of inflation expectations gives its monetary policy greater credibility.
France stands out: for the past 10 months, it has returned to low inflation, comparable to that seen before the Covid-19 pandemic
Paradoxically, French households' confidence in past price developments has not improved, despite a significant increase in their purchasing power, measured by real gross disposable income, since Q4 2020. This has led to a stronger increase in their savings rate (+3.5 points since Q4 2019 compared to +2.8 in the Eurozone). However, as in other countries, French households' expectations have returned to normal.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.