Eurozone | Inflation hits all consumers – just not evenly

Eurozone headline inflation has risen substantially, with underlying pressures becoming more broad-based. But we think the impact on consumer spending, the main driver of the recovery, will be relatively benign. Our latest forecast sees a 0.3ppt drag on consumption in 2021 and 2022.

What you will learn:

• Consumer confidence and expected spending plans remain strong in the face of rising prices, and some of the consumption may simply be rerouted into available outlets or delayed.
• Current high inflation could produce a lasting drag on consumption if it were to become embedded in households’ expectations, as elevated inflation expectations and uncertainty are detrimental to spending.
• Higher-income households hold most of the excess savings that will drive the consumption boost to growth.