Uncertainty about inflation expectations 12 months ahead of January 2023 edged up but remained broadly in line with the elevated levels observed since March 2022.

Europe’s median rate of perceived inflation over the previous 12 months declined to 9.5 per cent in January 2023, from 9.9 per cent in December 2022, according to a recent survey by European Central Bank (ECB). The region’s median expectations for inflation over the next 12 months edged down to 4.9 per cent from 5 per cent in the previous month.

Inflation perceptions and expectations were closely aligned across income groups, but younger respondents (aged 18-34) continued to report lower inflation perceptions and expectations than older respondents (aged 55-70), as per the ECB Consumer Expectations Survey.

In January 2023, consumers expected their nominal income to grow by 1.3 per cent over the next 12 months, up from 1 per cent in December. This improvement was primarily driven by respondents with household incomes below the median. Perceptions of nominal spending growth over the previous 12 months were roughly stable at 6.3 per cent. Expectations for nominal spending growth over the next 12 months moderated significantly to 3.8 per cent, from 4.2 per cent in the previous month. This decline was mainly driven by older respondents (aged 55-70).

While still pointing to a contraction, economic growth expectations for the next 12 months ahead of January 2023 continued to shift upwards to stand at minus 1.2 per cent, from minus 1.5 per cent in December 2022. In line with the higher expectations for economic growth, expectations for the unemployment rate 12 months ahead declined to 11.6 per cent, compared with 11.9 per cent in December. Consumers continued to expect the future unemployment rate to be higher than the perceived current unemployment rate (11.3 per cent). Quarterly data showed that, in January 2023, respondents who were unemployed reported a marginal increase in their expected probability of finding a job over the next three months, which rose to 28.1 per cent, from 27.9 per cent in October 2022. Employed respondents reported that the expected probability of job loss over the next three months lessened more significantly, falling to 8.1 per cent in January, from 9.2 per cent in October 2022.

Fibre2Fashion News Desk (DP)