Irish consumer confidence dipped marginally in July from the two year high recorded in June, according to the latest consumer sentiment index from KBC Bank Ireland.
A still uncertain economic outlook coupled with growing inflation fears, together with practical issues around the reopening and increasing nervousness about the Delta variant of Covid-19 are among the likely contributors to the fall in sentiment.
“A ‘pause for breath’ after five months of increasing consumer confidence is not entirely surprising and the scale of pull-back in the sentiment index is relatively modest,” Austin Hughes, chief economist with KBC Bank Ireland and author of the report said.
He interpreted the report as suggesting that Irish consumers, while not ‘risk averse’ are certainly ‘risk aware.’
Consumer spending continues to rise as the economic reopening continues, the report concluded, but it notes the lack of a broad-based ‘feel good factor’ among consumers.
The most notable weakening in consumer confidence in July related to the economic outlook with issues like the discourse around a minimum global corporate tax rate and house price pressures weighing on consumers.
“More broadly based difficulties around a step-up in living costs, both lately and looming, would have further contributed to a perception of problematic conditions for personal finances as well as the broader economy,” Mr Hughes said.
Central Banks have interpreted the inflation trend as ‘transitory’ with the European Central Bank indicating yesterday that it would tolerate higher inflation for a period without resorting to interest rate hikes or stemming its stimulus programmes.
Irish consumers’ thinking on the outlook for jobs weakened only fractionally in July, the report noted.
However, consumers appear somewhat more cautious in relation to the outlook for their personal finances for the next twelve months.
“In part, this reflects worries about rising living costs. It may also owe something to the expected phased reduction in fiscal supports. Finally, it could speak of uncertainty about income growth as the economy moves into a post-pandemic mode,” the report noted.
The KBC Bank consumer sentiment index declined to 84.9 from the twenty four month high of 87.2 reported for June.
The drop of just over 2 points pushed the index below May’s reading of 85.8 but leaves it well above that of April (77.9).
“Moreover, the recent trend, as expressed in the three month moving average for the survey, continued to edge higher. So, the July reading hints at just a minor re-adjustment of Irish consumer thinking of late,” Austin Hughes concluded.