The euro zone is unlikely to see a new boom in consumption as savings accumulated during the COVID-19 pandemic are largely held by the richest households, the European Central Bank said in a blog posting on Thursday.
The findings may strengthen the ECB’s view that inflation was now set to continue a gentle decline towards 2% and bolster arguments to keep interest rates on hold after an unprecedented streak of hikes drove them to record highs.
The ECB found that the 20% of households with the highest income held 49.3% of the excess savings made in 2020-22, followed by the next quintile at 19.8%.
Since richer people are less likely to spend every additional euro saved, this meant those savings were unlikely to be deployed any time soon.
The blog’s authors found some of those savings had been invested in financial assets, such as stocks and bonds, or in property, making them harder to access.
“Those hoping that the money put aside during the pandemic will support a surge in consumption any time soon will likely be disappointed,” wrote authors Niccolò Battistini and Johannes Gareis.
“This is a highly relevant insight for assessing what drives inflation and how monetary policy needs to respond.”
The ECB left interest rates unchanged last week and investors expect it to start cutting them in the spring as inflation falls and the economy stagnates, or even shrinks.