The European Central Bank (ECB) released its Consumer Expectations Survey on Friday, showing that median inflation expectations for the next 12 months dropped significantly during May.

Consumers’ inflation expectations for the coming year decreased to 3.5 per cent, down from 4.0 per cent in April.

Meanwhile, the median rate of perceived inflation over the previous 12 months remained unchanged at 4.0 per cent.

Longer-term projections remained stable, with inflation expectations for three years ahead holding at 2.9 per cent and five-year expectations fixed at 2.4 per cent.

Although uncertainty about inflation over the next 12 months decreased, the bank noted that it remains at a higher level than before the start of the conflict in the Middle East.

The survey highlighted demographic disparities, as respondents in lower-income brackets reported higher inflation perceptions and expectations than those in higher-income groups.

Younger participants aged 18 to 34 reported lower inflation perceptions and expectations compared to their older counterparts aged 35 to 70.

Regarding personal finances, nominal income growth expectations for the next 12 months rose slightly to 1.0 per cent from 0.8 per cent in April.

However, expected nominal spending growth for the year ahead decreased to 3.8 per cent, falling from 4.3 per cent in the previous month.

Economic sentiment showed a marginal improvement, with economic growth expectations for the next 12 months rising to -1.7 per cent, an improvement from the -2.2 per cent recorded in April.

Despite this, the expected unemployment rate in 12 months’ time increased marginally to 11.3 per cent, up from 11.2 per cent in April.

Lower-income households anticipated the highest unemployment rate at 13.7 per cent, while higher-income households projected a rate of 9.5 per cent.

Consumers continue to view the future unemployment rate as slightly higher than the perceived current rate of 10.7 per cent, suggesting a broadly stable labour market.

In the housing sector, consumers expect the price of their homes to increase by 3.6 per cent over the next year, a slight decrease from the 3.7 per cent expectation in April.

Expectations for mortgage interest rates remained unchanged at 4.9 per cent, a level that has held steady since March.

Lower-income households again expected the highest mortgage interest rates at 5.6 per cent, compared to 4.4 per cent among higher-income households.

The survey also indicated that the net percentage of households reporting a tightening of access to credit over the past 12 months reached its highest level since February 2024.

Conversely, the net percentage of households expecting tighter credit conditions over the coming year has decreased.