Consumers showing a new awareness of prices

CONSUMER confidence is one of the best indicators of the health of an economy.

If consumers are confident then they will spend money, keeping retailers, suppliers and manufacturers in business and people in jobs.

This week it was reported that consumer sentiment hit a two-year high in January.

CSO figures on the cost of living also showed that while consumer prices fell by 3.9% in the year to January, the fall was the lowest annualised rate in 10 months, with prices in general falling by just 0.6% last month, far less than the 1.7% drop in January last year.

Over the last year shoppers have benefited from an 8.2% fall in food prices, with clothing down 11.2%, furniture down 6.4% and electronics down 13.2%. Overall the cost of living was down 3.9% over the year.

“Consumers are still cautious and with good reason but they began 2010 on a notably more positive note,” said KBC economist Austin Hughes. The consumer world has changed dramatically over the last two years.

Speaking to the Dublin Chamber this week, Tesco chief executive, Tony Keohane said the supermarket giant has never had to trade through times more difficult than the last 18 months.

“We have all experienced a deep economic contraction – deeper than anyone could have imagined,” he said. And it was these tough times that prompted Tesco, like other retailers, to slash prices. This was good news for the consumer, struggling against falling wages and the prospect to job cuts.

Mr Keohane pointed out that there was a new consumer in town. He said consumers are now planning shopping trips “almost military style”. Household meals are planned in advance to reduce unnecessary waste, shopping lists are back in fashion, the once weekly shopping trip has become a three times a week affair and could involve multiple outlets. Distance is also no longer an issue as can seen by cross-border shopping. ASDA and Sainsbury’s, retailers without any presence in the Republic’s market, have captured almost 3% of the Irish grocery market. There has also been a growing and accelerating switch to own label brands.

If anything good has come from the economic downturn it’s the new awareness of prices by the consumer.

Davy analyst, Rossa White expects prices to fall by an average 2.3% this year, while Alan McQuaid of Bloxham Stockbrokers expects a 1% drop. Mr McQuaid of Bloxham Stockbrokers said, however, the pick up in consumer sentiment augurs well for retail spending this year. “The bottom line is that while overall prices are likely to be lower on average again in 2010 than in 2009, Ireland’s rate of deflation is set to ease considerably this year,” he said.