Consumers expect higher house prices and mortgage rates, ECB says

A European Central Bank (ECB) survey has shown slightly higher consumer perceptions of past inflation, alongside shifting expectations across income, growth, housing and credit conditions.

Specifically, the ECB reported that median perceived inflation over the previous 12 months rose to 3.2 per cent, compared with 3.1 per cent in November.

Median expectations for inflation over the next 12 months remained unchanged at 2.8 per cent.

The survey showed that three-year inflation expectations increased to 2.6 per cent, up from 2.5 per cent a month earlier.

Median inflation expectations for five years ahead rose to 2.4 per cent, compared with 2.2 per cent in November.

The ECB said uncertainty around 12-month inflation expectations was unchanged in December.

Respondents in lower income quintiles continued to report on average slightly higher inflation perceptions and short-term expectations than those in higher income quintiles, a pattern observed since 2023.

Despite this, the ECB found that inflation perceptions and expectations remained broadly aligned across income groups.

Younger respondents aged 18 to 34 continued to report lower inflation perceptions and expectations than respondents aged 35 to 54 and 55 to 70.

The ECB said expectations for nominal income growth over the next 12 months declined to 1.1 per cent, from 1.2 per cent in November.

Consumers reported that perceived nominal spending growth over the previous 12 months eased to 4.9 per cent, compared with 5.0 per cent in November.

Expected nominal spending growth over the next 12 months remained unchanged at 3.4 per cent.

The ECB explained that this stability reflected falling spending expectations among lower-income households and rising expectations among higher-income households.

Economic growth expectations for the next 12 months became less negative at minus 1.1 per cent, compared with minus 1.3 per cent in November.

The survey showed that expected unemployment 12 months ahead increased to 11.0 per cent, from 10.9 per cent a month earlier.

Lower-income households continued to expect the highest unemployment rate at 13.2 per cent, while higher-income households expected the lowest rate at 9.5 per cent.

Consumers expected future unemployment to be only slightly higher than the perceived current rate of 10.5 per cent, pointing to a broadly stable labour market outlook.

The ECB said expectations for home price growth over the next 12 months increased to 3.6 per cent, from 3.4 per cent in November.

Home price expectations diverged across income groups, with 4.1 per cent among the lowest income quintiles and 3.5 per cent among the highest.

Expectations for mortgage interest rates over the next 12 months rose slightly to 4.7 per cent, compared with 4.6 per cent in November.

Lower-income households expected the highest mortgage rates at 5.5 per cent, while higher-income households expected the lowest at 4.1 per cent.

The ECB said the difference in mortgage rate expectations between income groups widened slightly compared with previous months.

The net percentage of households reporting a tightening of access to credit over the previous 12 months declined further in December.

By contrast, the net percentage of households expecting tighter credit conditions over the next 12 months remained unchanged since October.