Euro area inflation outlook improves for next 12 months

In May, median consumer expectations for inflation over the next 12 months decreased significantly to 3.5 percent, down from 4.0 percent in April.

This marks a notable improvement in the short-term inflation outlook.

The median rate of perceived inflation over the previous 12 months, however, remained unchanged at 4.0 percent.

Longer-term inflation expectations held steady, with three-year ahead expectations at 2.9 percent and five-year ahead expectations at 2.4 percent.

Uncertainty about inflation expectations for the next 12 months also decreased.

Disparities persisted across income groups, with lower-income quintiles reporting higher inflation perceptions and expectations, and younger respondents reporting lower expectations than older age groups.

Consumers' nominal income growth expectations for the next 12 months increased to 1.0 percent, up from 0.8 percent in April.

Conversely, expected nominal spending growth over the next 12 months decreased to 3.8 percent, from 4.3 percent in April, suggesting a more cautious approach to future expenditures.

Expectations for economic growth over the next 12 months became less negative, improving to -1.7 percent from -2.2 percent in April, indicating a slight improvement in consumer sentiment.

However, expectations for the unemployment rate 12 months ahead rose to 11.3 percent from 11.2 percent.

The overall labor market outlook remained broadly stable, with future unemployment expected slightly above the perceived current rate.

In the housing sector, consumers expected home prices to increase by 3.6 percent over the next 12 months, a slight decrease from April.

Mortgage interest rate expectations remained unchanged at 4.9 percent since March.

Access to credit tightened further, with the net percentage of households reporting a tightening over the previous 12 months reaching its highest level since February 2024.

Expectations for future tighter credit conditions, however, decreased.