Inflation perception in the euro area falls in July 2024

According to the European Central Bank (ECB) consumer expectations survey, the euro area recorded a significant decline in the median perceived inflation rate in July 2024 compared with the previous 12 months, falling to 4.1 percent from 4.5 percent in June. Despite this decline, inflation expectations remained below the perceived inflation rate of the past for both the one-year and three-year horizons.

Notably, median inflation expectations for the next twelve months remained stable at 2.8 percent for the third month in a row, after falling to their lowest level since September 2021 in May. Meanwhile, median inflation expectations for the next three years rose slightly by 0.1 percentage points in July, reaching 2.4 percent, according to the survey.

Uncertainty about inflation expectations for the next 12 months remained at its lowest level since February 2022, when Russia invaded Ukraine, suggesting a stabilization in consumer sentiment. Interestingly, the survey showed that inflation perceptions and expectations were relatively consistent across different income groups. However, younger respondents (18-34 years old) continued to report lower inflation perceptions and expectations than older respondents (35-54 years old and 55-70 years old).

The survey also showed a decline in consumers' expectations for nominal income growth, which fell from 1.4 percent in June to 1.1 percent in July. This decline in income expectations was seen across all age and income groups, with the decline most pronounced in the bottom two quintiles. In addition, perceptions of nominal spending growth over the past 12 months continued to decline, standing at 5.4 percent in July, down from 5.8 percent in June and 5.9 percent in May. This marks a continuation of a sustained decline in spending growth that began in March 2023. Expectations for nominal spending growth over the next 12 months also declined slightly, falling to 3.2 percent from 3.3 percent in June, the lowest level since February 2022.

Expectations for economic growth over the next 12 months turned increasingly negative in July. The forecast fell to minus 1 percent from minus 0.9 percent in June. Despite this pessimistic outlook for economic growth, expectations for the unemployment rate over the next 12 months remained unchanged at 10.6 percent, the lowest level since the data series began. This suggests that consumers expect a relatively stable labor market and that the future unemployment rate is only likely to be slightly higher than the currently expected rate of 10.1 percent.

However, the survey also revealed some concerns on the labor market. Quarterly data showed that the probability of finding a job within the next three months has declined among unemployed respondents. This figure fell from 27.5 percent in April to 26.6 percent in July. In addition, employed respondents said the probability of losing their job within the next three months has increased. This figure rose from 8.7 percent in April to 8.9 percent in July.

In July 2024, the euro area recorded a decline in perceived inflation to 4.1 percent from 4.5 percent in June. Inflation expectations for the next 12 months remained stable at 2.8 percent, while three-year expectations rose slightly to 2.4 percent. Income growth expectations fell to 1.1 percent and the outlook for economic growth deteriorated to minus 1 percent.

Newsroom of Fibre2Fashion (DP)