Median consumer expectations for inflation over the next 12 months fell to 2.9% in July from 3.0% in June, according to the European Central Bank's Consumer Expectations Survey. Perceived inflation over the previous 12 months declined to 3.5% from 3.6%, while median expectations for inflation three years ahead slipped to 2.7% from 2.8%. Expectations for inflation five years ahead remained at 2.4%.
Consumers' expectations for nominal income growth over the next 12 months decreased to 1.0% from 1.1% in June. Perceived nominal spending growth over the previous 12 months remained unchanged at 5.1%, while expected nominal spending growth over the next 12 months held at 3.6%, with lower-income respondents expecting slightly higher spending growth than higher-income groups.
Economic growth expectations improved to -1.2% for the next 12 months from -1.4% in June, while unemployment expectations held steady at 11.2%. Lower-income households expected the highest unemployment rate at 13.5%, compared with 9.4% among higher-income households. However, quarterly data showed deteriorating labour market sentiment: unemployed respondents reported a lower probability of finding work over the next three months at 30.8% in July from 32.1% in April, while employed respondents reported a higher probability of job loss at 9.8% in July from 8.8% in April.
Consumers expected home prices to increase 3.4% over the next 12 months, unchanged from June. Expected mortgage interest rates in 12 months declined to 4.9% from 5.0%. The share of consumers who reported applying for credit in the past three months rose to 14.3% in July from 13.4% in April, while the net percentage expecting tighter credit conditions over the next 12 months declined compared with June.
Lower-income households reported consistently higher inflation perceptions and expectations than higher-income groups, while younger consumers aged 18-34 reported lower inflation expectations than older respondents. Uncertainty about 12-month inflation expectations remained unchanged and continued to exceed levels recorded before the start of the Middle East conflict.
