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December 4, 2022

Europeans more concerned about energy than inflation

Macro commentary by eToro analyst for Romania, Bogdan Maioreanu

 While inflation is eroding the purchasing power of the public, in a recent survey the respondents are estimating that their revenues will increase in the next year but less than the expenses. For Europeans, the energy crisis is the main concern for the households as we are stepping into the first month of winter.

According to a survey by McKinsey, inflation is the main cause for concern about the economic growth in the next 12 months for most of the World but not for Europe. The responders from our continent see the volatile energy prices before inflation. This energy situation is a cause for concern for companies too, leading to costs increases for all responders but the ones in North America. There, the wages are the main cause for concern showing that respondents and the Fed have the same focus.

The latest ECB Consumer Survey, is showing that the respondents expected their nominal income to grow by an average 1.0% over the next 12 months, up from 0.8% in July. The youth are expecting higher increases in income than the other age groups. When asked “How much higher/lower do you think your household spending is now compared with 12 months ago”, the respondents showed an increase to 5.8% from 5.4% a month ago. The survey is covering France, the Netherlands, Italy, Belgium, Spain and Germany.

In Romania, the latest data shows that in Q2 2022 the average household revenue reached 6241 RON. The average total expenses of a household represented 86.1% of total revenues. The household income is 67.6% out of wages, 19.9% from social protection like pensions, unemployment, maternity and sick leaves payments and 6% were revenues in kind from local production.

If we are looking at the expenses structure it is easy to see that most of the revenues are going to consumption – 61.5% and taxes – 32.4%. Only 0.8% of the expenses are directed toward investments. Food is 35.1% of the expenses, household expenses, including utilities are 15.5%, tobacco and liquor – 7.8%, same percentage as transportation and clothing and shoes 7.3%.

Therefore there is no surprise that the August retail trade data was very good. Turnover from retail trade (excluding motor vehicle trade and motorcycles), compared with the previous month, increased overall by 2.7%, due to increases in sales of non-food products (+3.8%), sales of food, beverages and tobacco (+2.3%) and retail trade of motor fuels in specialized stores (+1.2%).

Perceived inflation over the last 12 months for the European consumers continued to increase according to the ECB Consumer Survey. When asked how much higher or lower the prices are in your country compared with 12 months ago, people responded with a median 8%, higher with 0.1% compared to July results. The youth, people with ages below 35 years, are seeing lower increases in prices than the other age groups. Inflation estimates for the next 12 months remained stable at 5% while the one for the next three years remained at 3%.



Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.

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