BoI: Consumer confidence shines somewhat, but business dented as costs rise

Confidence among Irish consumers has been damaged but not destroyed, despite consumer prices having climbed at their highest pace for two decades, according to a major survey.

The Bank of Ireland economic pulse survey also found that its measure of confidence across business in May was above the level posted before the Covid-19 crisis, with retail and services gaining, while the confidence of industry and construction took a dip. 

However, the bank said the survey showed a mixed snapshot, with its "consumer pulse regaining some lost ground whereas the business pulse more or less stalled", with signs that high costs were beginning to hurt some firms. 

"The picture in May was nuanced though, with the consumer pulse rallying but the business pulse largely unchanged," said Loretta O'Sullivan, group chief economist at Bank of Ireland. 

"While households remain cautious in the main, the arrival of the holiday season looks to have raised spirits a bit," she said.

It comes as there are major concerns that the economic clouds are darkening across Europe and the US. Inflation, which was already starting to rise last year as the global economy emerged from the pandemic, worsened considerably after energy and food prices took off following the February 24 invasion of Ukraine. 

Major central banks have already started to hike interest rates to counter inflation, and the ECB is expected to start increasing rates, albeit at a more gentle pace, from July. 

US and European stock markets have reeled, as they fear the possibility of the onset of recession in the UK and other major economies.    

Surveys of Irish consumers by KBC Bank and Permanent TSB last week have repeated the similar theme: Many households here may be struggling, but others still have money to spend and are cushioned somewhat from savings built up during the long months of the Covid-19 crisis. 

Economists and debt advisers have long warned that the most vulnerable households have the most to lose as inflation accelerates. 

Meanwhile, despite the prospect of ECB rate hikes, the survey showed most households expect house prices to rise in the next year.