Consumer sentiment is at its highest level for two years, an economic survey revealed today.
The index, compiled by KBC bank and the ESRI think-tank, claimed shoppers felt January was a good time to make big purchases thanks mainly to the winter sales.
But it warned that once the bargains end and credit card bills come in this month the pick-up in High Street confidence will reverse.
Austin Hughes, chief economist with KBC Ireland, said the surprisingly strong figures appeared too good to be true.
“It seems clear that the mood of consumers is brightening, reflecting an easing in fears about economic prospects and perhaps a generally positive assessment of the December budget,” he said.
“It should be noted that the January reading doesn’t suggest irrational exuberance has taken hold of Irish consumers.
“Even after January’s increase, current levels of the survey suggest consumers remain fairly cautious but they are notably less pessimistic than they were.
“It is likely that the sharp improvement in the buying climate will be at least partly reversed in the February survey as Christmas sales end and bills arrive.”
The consumer sentiment index reported that the January survey confirmed economic worries are easing although consumers still remain cautious.
The index rose 11.3 points to 64.6 last month – the strongest monthly change since a similar rise in December 2004.
It also said all aspects of the index rose – the first time since January 2006.
The survey found consumers were encouraged by aggressive sales in the days before Christmas and in the New Year, a general feeling that the worst of the economic downturn is over and the scale of job losses will ease this year.
It also said that despite a permanent hit to living standards in the recession people are less negative about household finances.
ESRI economist David Duffy said: “The sharp improvement in consumers’ perceptions of the current environment reflects the view that January was a good time to purchase major items.
“Historically this component has improved every January, reflecting, at least in part, the winter sales, followed by a more subdued figure in February.
“We expect this pattern to continue and as a result some moderation might be anticipated next month.”