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(Bloomberg) — Euro-area households curtailing spending after the start of the Iran war seemed more worried by the overall uncertainty rather than faster inflation, according to research by the European Central Bank.
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Confidence sank and consumption momentum softened materially as the conflict erupted, economists including Neus Dausa i Noguera, Maria Dimou and Omiros Kouvavas wrote in an article for the ECB’s economic bulletin this week.
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The slowdown was driven by weaker discretionary spending, they found. Nominal outlays on energy rose, reflecting costlier transport, while expenditure on housing and food was resilient. Higher-income households made the sharpest adjustments.
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“The weakening in nominal consumption appears to have been driven largely by households that are not budget constrained but are choosing to delay spending in response to heightened uncertainty,” the researchers said.
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“Although higher prices associated with the war in the Middle East may also have played a role, the analysis below suggests the presence of a sentiment-driven channel that persists even after controlling for realized income,” they added.
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A drop of 10 points in confidence from the previous year was associated — on average — with a reduction of about 0.4 percentage points in individual nominal consumption in April 2026, they said. That’s comparable to April 2022, when households grappled with Russia’s invasion of Ukraine.
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While consumer sentiment has improved recently, shoppers haven’t necessarily got over the shock.
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“If households were to perceive the real income losses stemming from the conflict as persistent and associate them with lower real purchasing power, the initial sentiment-driven slowdown could become more entrenched,” the researchers wrote.
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