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Are real incomes increasing or not? Household perceptions and their role for consumption

Author

Listed:
  • Kocharkov, Georgi
  • Kouvavas, Omiros
  • Baumann, Adam
  • Caprari, Luca

Abstract

The inflation surge seen in the past few years has had a negative impact on consumer perceptions about real incomes. These perceptions seem to persist even as real income has actually improved over time. This behaviour, which can be seen as a form of pessimism, is particularly strong among lower and middle-income households and has had a negative impact on actual consumption. These findings underscore the importance of perceptions in economic behaviour. As pessimism following large economic shocks typically disappears, albeit gradually, consumption should gain momentum as perceptions about real incomes improve. JEL Classification: D84, D91, E21, G51

Suggested Citation

  • Kocharkov, Georgi & Kouvavas, Omiros & Baumann, Adam & Caprari, Luca, 2025. "Are real incomes increasing or not? Household perceptions and their role for consumption," Economic Bulletin Boxes, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:ecbbox:2025:0001:2
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    More about this item

    Keywords

    consumption; expectations; perception bias; real income;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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