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ECB denied the possibility of consumption boom

A new consumption boom is unlikely to hit the eurozone as savings built up during the Covid-19 pandemic are largely held by the richest households, the European Central Bank reported on Thursday.

The ECB’s findings suggest that inflation will now continue its gradual decline to 2% with interest rates holding steady after an unprecedented series of hikes.

The Bank found that the 20 per cent of households with the highest incomes owned 49.3 per cent of excess savings made between 2020 and 2022. As richer people are less likely to spend the money, the savings are unlikely to be utilised any time soon.

The authors of the ECB blog found that some of these savings were invested in financial assets, such as stocks and bonds, or real estate.

Those hoping that the money put aside during the pandemic will support a surge in consumption any time soon will likely be disappointed. This is a highly relevant insight for assessing what drives inflation and how monetary policy needs to respond.

Last week, the ECB left interest rates unchanged. Investors expect the Bank to start cutting them in the spring when inflation falls and the economy stalls or even shrinks.

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