Price hikes see consumer confidence drop to 18-month low

The 24-point decline from February to April is the second largest in the 26-year history of the KBC Bank consumer sentiment survey

The drop in consumer confidence over the past three months is exceeded only by the collapse in sentiment as Covid 19 closed down the economy in early 2020.

Consumer confidence amongst Irish households fell sharply for the second month in a row as concerns about living costs intensified.

The slide in consumer sentiment in March due to surging inflation and the war in Ukraine suggest a much darker economic outlook for the year ahead with consumers becoming notably more pessimistic about their spending plans. It brings to an end the optimism expressed by consumers in the early weeks of the year as virtually all pandemic restrictions were lifted.

The weakest elements of the April survey from KBC Bank were those focused on household finances and spending, suggesting increasing strains in making ends meet. The 9.3-point drop is very similar to the 10 points seen between February and March.

KBC's chief Economist, Austin Hughes, said the cumulative 24-point decline from February to April is the second largest in the 26-year history of the survey, exceeded only by the collapse in sentiment as Covid-19 closed down the economy in early 2020.

Seven out of 10 consumers expect the Irish economy to be weaker in 12 months’ time while nearly half expect unemployment to be higher. The most pronounced weakening in the April sentiment survey was in those elements focused on consumers’ own spending power and spending plans. 

"In light of the pronounced upward pressure on energy costs, both actual and announced, as well as markedly increased concerns in relation to food prices, it is scarcely surprising that there was a marked downgrade both of the trend in household finances through the past year and the outlook for the next 12 months," Austin Hughes said.

The survey of 1,000 adults comes in the same month that the Central Statistics Office (CSO) reported that prices are increasing at their fastest rate in almost 22 years.

The consumer price index for March showed prices across the board rose 6.7% in the previous year. The last time it was this high was the 7% recorded in November 2000.

The KBC survey asked households how they would be financially prepared for an unexpected emergency. While 12% of consumers say they could deal with an unexpected financial cost amounting to €1,000 out of their current income, as many as 7% say that they could not handle such an expense through any funds or financial capacity available to them. 

It implies a significant number of Irish households would face a major struggle to replace a major electrical appliance or handle significant motor or home repairs.

"The details suggest some weakening compared to a year ago that likely reflects both the recent sharp rise in inflation and the drawdown of savings built up in the pandemic," Hughes said.

Despite the rising inflation and falling consumer confidence, the IMF has forecast the Irish economy to be the fastest-growing in the eurozone over the next two years.

While GDP growth in the eurozone will slow sharply to 2.8% this year and 2.3% in 2023, Ireland’s GDP will grow 5.2% this year and by 5% in 2023, while inflation here will average 5.7% and 2.7% over the two years, the IMF forecasts.