Household inequality and financial stability risks: exploring the impact of changes in consumer prices and interest rates

= Household inequality and financial stability risks: exploring the impact of changes in consumer prices and interest rates =

Metadata

Provider:

ECB

URL:

https://www.ecb.europa.eu//pub/financial-stability/fsr/special/html/ecb.fsrart202211_02~8c5b8be620.en.html

Retrieved on:

Saturday, November 26, 2022

Information

Tags:

GDP, Growth, B.1, Housing, B.3, OECD, Policy, Household, Consumption, Food, Risk, Unemployment, Employment, Overalls, Shock, B.2, Face, Government, Fixed-rate mortgage, HFCS, NPL, B.4, Guideline, Book, Time, Tax, ECB, Journal, Translation, Finance, Income, Pressure, Probability, Budget, Renewable energy, Security (finance), Real estate, Bank, Bookkeeping, Mobile phone, Credit

Geotags:

IRELAND, SPAIN, AMPUDIA, FINLAND, SLOVENIA, NETHERLANDS, LITHUANIA, ESTONIA, CYPRUS, GREECE, PORTUGAL, LUXEMBOURG, LATVIA

Summary

Key Points:

= Household inequality and financial stability risks: exploring the impact of changes in consumer prices and interest rates =
Published as part of the Financial Stability Review, November 2022.
Since the start of 2022, euro area households have seen the largest increase in consumer prices in decades and the first increase in interest rates in over ten years.
Simulations of the impact of rising consumer prices and interest rates on the near-term financial health of households reveal a more pronounced risk of default in lower income quintiles.
During 2022, euro area households have seen the largest increase in consumer prices in decades and the first increase in interest rates in over ten years.
Despite the scale of the pandemics impact on overall GDP, households have generally experienced relatively benign financial conditions in recent years, supported by declining unemployment, stable incomes and low interest rates.
On aggregate, debt service-to-income ratios and household non-performing loan (NPL) ratios have steadily declined since 2015 ( Chart B.1, panel a).
However, the recent combination of higher core inflation, surging energy prices, high economic uncertainty and increasing mortgage rates could test households financial capacity ( Chart B.1, panel b).
Additionally, significant declines in consumption resulting from the financial squeeze could have a negative feedback effect on economic performance.
Recent stability in euro area households financial situation could be tested by sharp increases in energy and consumer prices
Sources: Panel a: Bank for International Settlements, Eurostat, ECB and ECB staff calculations.
This special feature explores financial stability risks from a perspective of household inequality.
It takes a granular look at households consumer price and interest rate sensitivities, exploiting distributional survey data from the ECBs Household Finance and Consumption Survey (HFCS).
The average lower-income household in the euro area spends a large portion of its income on basic goods and housing.
By contrast, the average household in the lowest income quintile spends about 70% on basic needs ( Chart B.2, panel a).
[6] The lower the income, the higher the probability of any illiquidity stemming from changes in prices and interest rates translating into debt default.
Shock refers to the impact of changes in consumer prices and interest rates on household finances between the first quarter of 2022 and the end of 2022.
Shock refers to the impact of changes in consumer prices and interest rates on household finances between the first quarter of 2022 and the end of 2022.