Eurozone consumers brace for recession and high inflation

Median consumer prices are expected to grow by 5% over the next year and inflation is expected to be at 2.8% in 2025, according to a poll carried out by the ECB

The Consumer Expectations Survey showed that households are beginning to lose faith in the ECB's ability to bring inflation back down to its 2% goal.

Consumers in the eurozone are bracing for the economy to shrink and for high inflation to continue eating into their income in the next year, a European Central Bank survey has shown.

The Consumer Expectations Survey, used by policymakers for input in their deliberations and published today for the first time, showed households were beginning to lose faith in the ECB's ability to bring inflation back down to its 2% goal.

The poll, carried out in June, showed the median consumer expected prices to grow by 5% over the following year and saw inflation at 2.8% in three years' time.

This compares to expectations for nominal income to grow by 0.9% and spending by 3.9%, implying a large dent in households' ability to save.

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

By comparison, the ECB expects inflation to average 6.8% in 2022 before falling to 3.5% in 2023 and 2.1% in 2024. It 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 guided for more hikes in the months ahead to fight record-high euro zone inflation, which hit 8.9% last month.

It cited "anchoring...inflation expectations" as one of the reasons for the move.

For the survey, the ECB interviews around 14,000 adults each month from Belgium, Germany, Spain, France, Italy and the Netherlands. These countries represent 85% of the euro area's GDP and 83.8% of its population.