Pessimism of Greek and European households

According to the Inflation Monitor published by the Bank of Greece, Greek households are more pessimistic than eurozone households about inflation trends over the next 12 months, while expectations of inflation pressures are significantly higher than current inflation.

According to the latest European Central Bank consumer expectations survey, average inflation expectations in Greece remained broadly stable over the previous 12 months, at 10% (in February 2024). While in the euro area they fell slightly to 3.1% from 3.3% in January. Median three-year inflation expectations in Greece rose to 6.6% in February 2024 from 6.4% in January 2024, while they remained stable at 2.5% in the eurozone.

In the euro area, annual headline inflation fell slightly to 2.4% in March 2024 from 2.6% in February. This development of events reflects a decrease in inflation for components of food and non-energy industrial goods. Core inflation also fell to 2.9% in March 2024 from 3.1% in February.

However, this trend does not apply to Greece, as annual inflation rose to 3.4% in March 2024 from 3.1% in February. Non-energy industrial goods and services posted higher annual growth rates. “Unprocessed food inflation in Greece remains significantly higher than in the euro area,” the Inflation Monitor said. Structural inflation also rose to 3.4% in March 2024 from 3.0% in February, due to higher annual rates on both its components.

The pessimism of Greek households can also be explained by the revealing data in the latest report presented by the Bank of Greece. Business profits remain strong, erasing what is commonly called a “great deal” while purchasing power records weak growth that falls short of inflation.

For the nine months of 2023, the share of net profit (defined as the ratio of net operating profit to net value added) of enterprises amounted to 37.7%, although it decreased from 41.4% in the corresponding period of 2022. It should be noted that in the period 2021-2022, company profitability indicators exceeded historical highs, especially in the industrial, construction and services sectors. According to the central bank, high business profitability is due to factors such as the relatively small size of the domestic commodity market and the lag in implementing sufficient structural changes in this market that allow enterprises to record high profits.

However, given that the purchasing power of the average salary increased by only 1.2%, the pessimism of Greek households is understandable.

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