Europe’s Household Budgets Rebound as Inflation Eases, but Housing Still Dominates Spending
European households are gradually regaining spending power as inflation eases, but housing, food and transport continue to absorb the bulk of family budgets across the continent, highlighting persistent cost-of-living pressures despite stronger wage growth.
In Spain, household spending rose 3.1% in 2025 from a year earlier to an average of €35,101, according to data published by the National Statistics Institute (INE) on Thursday. The increase slightly outpaced annual inflation of 2.9%, reflecting a modest recovery in real purchasing power.
Housing-related costs led the rise. Average spending on housing, water, electricity, gas and other fuels climbed 5.8% to more than €11,600 per household, while expenditure on personal care and social protection increased by 5.2%.
At the same time, Spanish households cut spending on alcohol, tobacco and narcotics by 3.4% to an average of €432 per year. Spending on restaurants and accommodation also slipped, falling 2.7% to €3,280.
The figures point to notable generational differences. Households headed by people aged 16 to 29 allocated a larger share of their budgets to restaurants and hotels than older households, while spending on alcohol and tobacco increased significantly among middle-aged consumers.
Housing, food and transport together accounted for about 60% of total household expenditure in Spain. Housing and utilities represented 33.2% of budgets, food accounted for 16%, and transport 11.5%.
The burden was considerably heavier for lower-income households. Families with the lowest spending levels devoted 61.5% of their budgets to housing, utilities and food, compared with 41.2% among the highest-spending households.
Regional disparities were also evident. The Basque Country recorded the highest average spending per person at €16,642, followed closely by Madrid at €16,124. Andalusia, Extremadura and the Murcia region remained among the lowest-spending areas, with annual expenditure per person close to €12,000.
The Spanish data reflects a broader trend visible across Europe. According to Eurostat data and economic reports for 2025 and 2026, household budgets have begun to stabilise after several years of inflation-driven pressure, helped by wage growth that has finally outpaced price increases in many countries.
Household consumption in the euro area continued to expand through early 2026, supported by stronger real incomes, lower inflation and a gradual recovery in consumer confidence. Euro-area unemployment remained close to historic lows, while household savings rates appeared to have stabilised after a period of precautionary saving linked to economic uncertainty.
Housing remains by far the largest expense across Europe, accounting for roughly one-third of household budgets. Rent, mortgage costs and utility bills continue to weigh heavily on urban households, even as wholesale energy markets have stabilised. Ireland and Denmark remain among the most expensive countries for housing costs, while Germany continues to face some of the highest energy prices in the European Union.
Food accounts for around 17% of household spending across the bloc. Although food inflation has slowed, consumer behaviour continues to change. More Europeans are replacing restaurant meals with prepared food bought from supermarkets, while neighbourhood grocery stores have reported rising customer traffic.
Transport typically absorbs between 11% and 13% of household budgets, though the share varies significantly between countries. Public transport usage has increased in several markets as governments expand subsidies and discounted travel schemes, particularly in Germany, Austria and France.
Price differences across Europe remain stark. According to Eurostat's consumer price index data, Denmark and Ireland continue to rank among the most expensive countries in the EU, while Romania and Bulgaria remain among the least expensive. In many lower-cost economies, households still devote a disproportionately large share of income to basic necessities such as food and housing.
Economists say the overall picture is one of gradual recovery rather than a return to pre-inflation spending patterns. Rising wages and lower price growth have eased pressure on household finances, but essential living costs continue to dominate budgets across much of Europe, limiting discretionary spending despite improving economic conditions.
Source: [RTVE]( https://www.fitchratings.com/research/sovereigns/euro-area-household-consumption-set-to-increase-in-2026-24-02-2026)