ECB's Schnabel: eurozone economic recovery is hampered by distorted perceptions of inflation

Eurozone households underestimate the real growth of their incomes due to ‘misperceptions about inflation.’ This circumstance is hampering the recovery of the EU economy, making the population reluctant to spend money, according to Isabel Schnabel, a member of the Governing Council of the European Central Bank (ECB), speaking on Thursday.

Despite slowing inflation and wage growth, consumer spending in the region remains weak, a puzzle for policymakers, as noted by Reuters.

Although more than half of eurozone households felt the growth of real incomes in 2024, only 11% acknowledge it, Schnabel stressed. Pessimism is concentrated among poorer and less financially literate groups.

This discrepancy means that the ECB's monetary tightening has led to more spending cuts than anticipated, which has weakened the bank's economic recovery, the official commented.