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

Georgi Kocharkov, Omiros Kouvavas, Adam Baumann and Luca Caprari

Economic Bulletin Boxes, 2025, vol. 1

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

Keywords: consumption; expectations; perception bias; real income (search for similar items in EconPapers)
Date: 2025-02
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