HICP inflation hovered below 1% in the second half of 2013 and kept drifting down over the entire 2014, reaching a slightly negative level, –0.2%, last December. These developments were accompanied by a significant decline in various measures of long-term inflation expectations. This situation is different from the one faced by the Governing Council in previous years.
However, even wealthy households can find it difficult to sustain their spending if the shocks persist for a longer period of time. This finding is in line with a number of similar recent results, including those of Anderson et al.