Consumer spending remains subdued despite rising real incomes as households continue to feel the psychological impact of recent inflation, according to a new European Central Bank (ECB) study.
The analysis, authored by Adam Baumann, Luca Caprari, Georgi Kocharkov and Omiros Kouvavas, reveals that while real household income increased by 3.8% between Q2 2022 and Q2 2024, private consumption grew by only 1.2%.
Low and middle-income households show particular pessimism about their financial situation, with negative perceptions persisting even as real incomes improve, the study found.
“These perceptions, which can be viewed as a form of pessimism, have had a negative impact on actual consumption”, the authors wrote in the report titled “Are real incomes increasing or not? Household perceptions and their role for consumption“.
The research indicates that services spending has been most affected by this consumer pessimism, more than essential goods or durable products.
National accounts data shows households perceiving lower incomes than reality demonstrate significantly more negative changes in consumption patterns compared to those accurately perceiving income increases.
The ECB analysts expect consumption to gain momentum as pessimism from major economic shocks gradually dissipates and perceptions of real income improve.
“Historical patterns suggest that such pessimism typically fades, albeit gradually, following major economic shocks”, the report concluded.
Read more:
