Sharp rise in consumer sentiment as Irish households weather Christmas better than feared

Energy credits, social welfare bonus payments and falling energy prices bring level of optimism

Economist Austin Hughes, reacting to the Credit Union Consumer Sentiment Index, said: "A sense that 2023 could prove difficult rather than disastrous for Irish consumers."

Irish consumer sentiment rose sharply in January as falling oil prices, strong economic data and the receipt of energy supports encouraged a less negative view of the economic circumstances of households.

The Credit Union Consumer Sentiment Index, which has tracked household sentiment for the past 27 years, rose from 48.7 in December to 55.2 in January, its strongest level in seven months.

The survey results suggest Irish households felt they weathered the financial demands of Christmas better than feared. The receipt of fiscal supports in the form of energy bill credits and 'Christmas bonus' welfare payments may also have assisted in the upgrade to the outlook.

Economist Austin Hughes said the boost in sentiment points to consumers thinking that the worst may be behind them in terms of the pace of increase in the cost of living. 

"A sense that 2023 could prove difficult rather than disastrous for Irish consumers is also suggested by a marked pick-up in spending plans in the January sentiment reading," he said.

Consumers and households have been grappling with soaring inflation for the past 12 months with prices in Ireland jumping by more than 9% at a level not seen since the 1980s. Energy prices, in particular, saw increases of more than 20%.

All five main elements of the consumer sentiment survey showed improved readings in January relative to December. 

"Our sense is that the switch over Christmas and New Year away from the normal routine to less news-focussed time which was instead spent with family and friends may have eased consumer concerns somewhat," Hughes said. 

Despite the increase in January, the current reading remains significantly below the 85.6-point average since the survey first began, suggesting Irish consumers remain very much aware of the economic and financial challenges that the new year holds.

In contrast to the December results, the strongest month-on-month changes were in those elements of the survey focussed on household finances, rather than the broader economic climate. Hughes said the pick-up in January spending plans may be a tentative signal that many consumers sense that the worst could be over in terms of the intensity of price pressures.

The 6.5-point monthly increase was the largest since a seven-point gain in January 2022, a result that hints at some element of seasonal lift. "To the extent that seasonal factors played a role, we might expect to see a somewhat softer reading in February," he said.

The improvement in Irish consumer sentiment in January mirrored gains in similar confidence measures in the US that likely reflected falling fuel costs and in Germany where fiscal supports may also have played a role. In contrast, UK consumer confidence weakened in January reflecting growing negativity about the economy and concerns about the health of the public finances.

The survey also sought the views of households in Northern Ireland. The outlook there was more negative, with household finances remaining under pressure, but not as widely negative as 2022.