Consumer sentiment index drops

CONSUMERS became increasingly worried last month as they came to terms with rising interest rates and a poorer economic outlook.

The possibility of more hits in the budget and sharp increases in gas and electricity prices will also weigh heavily on consumers in the coming months.

The KBC/ESRI consumer sentiment index weakened to 55.9 last month, from 56.3 in June.

Given the raft of bad news the drop in the index wasn’t dramatic. However, there were some positives last month.

June inflation numbers were lower than expected, consumers enjoyed a cut in the VAT rate on tourism products as well as a slightly softer trend in international oil prices. There was also evidence of dramatic price cuts in summer sales.

KBC chief economist Austin Hughes said the July sentiment survey results confirm a slightly poorer trend of late following the tentative improvement seen earlier in the year.

“The reasons for this weakening are many and varied but they largely relate to threats of a much poorer macroeconomic environment.”

Mr Hughes also said an “incessant focus” on the crisis has made Irish consumers familiar with a large number of previously exotic financial terms.

“While the average Irish consumer may not understand all the complexities of the global financial system, he or she has become sufficiently attuned to the message coming from a range of indicators to appreciate they point to the possibility of tougher times ahead,” he said.

“The lack of clear and coherent policy action at a European level would also have added to Irish consumer nervousness in these circumstances.”

It was a similar picture globally. The comparable US measure, compiled by the University of Michigan, fell to its lowest level in two years in July. Confidence among eurozone consumers posted the largest monthly drop since December.

“Although the degree of unease may vary significantly from country to country faltering income prospects and recurrent financial tremors mean consumers worldwide share a sense of unease about their future,” Mr Hughes said.

Although the index fell last month it is still well above the all-time low seen in July 2008.