Consumer sentiment at three-month low amid rising costs and a lack of supports in budget

Economist Austin Hughes said measures in the recently announced budget 'are expected to drain spending power for the majority of consumers and there has been a renewed and high-profile pick-up in inflation of late'

The budget announced earlier this month contained no changes to income tax bands or one-off cost of living measures. 

Consumer sentiment hit a three-month low during October as rising costs and reduced fiscal supports raised concerns for households heading into the winter period, the latest Credit Union Consumer Sentiment Index shows.

This index comes following the budget announcement earlier this month, which did not see any adjustments to income tax bands and no one-off cost-of-living measures for households.

The consumer sentiment index had a reading of 59.9 in October, down from 61.7 in September and just marginally ahead of the 59.1 reported in July, when tariff concerns appeared to threaten a markedly poorer outlook for the Irish economy. The index had a reading of 74.1 in October last year.

The analysis of the index was written by economist Austin Hughes, who said the monthly change in consumer sentiment “might be regarded as relatively modest” given measures in the recently announced budget “are expected to drain spending power for the majority of consumers and there has been a renewed and high-profile pick-up in inflation of late”.

He said consumers were “notably more negative” about their household finances now when compared to the post-budget period last year.

Of the five elements of the sentiment survey, four were lower in October compared to September, with the weaknesses concentrated on household finances.

“The month-on-month weakening in these survey elements was not dramatic, but it was sufficient to translate into the poorest assessment of household finances over the past 12 months since December 2023,” he said.

Mr Hughes said as a result of financial strains being a significant concern for Irish consumers at the moment, overall spending growth is likely to slow rather than stop next year.

The survey also asked people about whether they expect their household income and costs to change next year. It found three in four people, 76%, expect living costs to increase in 2026, with one in four expecting a "large" increase.

Grocery prices and energy bills are areas where most people see costs rising next year. 

The only area with a notable expectation of lower costs is in relation to going out and entertainment, which Mr Hughes said relates to a likely “pullback in discretionary spend”.

Only one in three people expect their incomes to increase next year, and only 4% of consumers anticipate a large increase in household income.

A large change was defined as a 5% increase or decrease.

“The broad message of these responses is that there is a widespread expectation among Irish consumers that, both in terms of scale and spread, increases in household living costs will clearly outpace any gains in income in 2026,” Mr Hughes said.

Older consumers were more likely to anticipate significant increases in household living costs next year and less likely to envisage lower costs than younger consumers.

Mr Hughes said the current negative assessment of household finances “seem at odds” with official data showing average wages rising faster than consumer prices.

“A range of reasons may be put forward for this seeming divergence between experienced and economic ‘realities’.” 

He said average measures may obscure the current conditions across the spectrum of Irish consumers with higher salaries having an outsize impact.

“The persistence of upward pressure on consumer prices may have exhausted any remaining financial headroom for some households even if, on average, incomes are now increasing as fast or faster than consumer prices,” Mr Hughes said.

He added the lowest 40% of households had negative savings every year between 2010 and 2023, meaning they were poorly positioned to cope with the surge in prices in 2022 and 2023.

The index is conducted by Core Research on behalf of the Irish League of Credit Unions. It involved a survey of 1,000 adults.