Consumer sentiment is “backing out”, with a third of households saying they are just making ends meet, according to the Bank of Ireland’s latest Economic Pulse Index.
The monthly survey found that the post-pandemic confidence recovery has reversed as people brace for rate hikes as inflation continues to rise.
The overall index score fell 3.9 points to 78.8 in June, down 11 points from June 2021.
But the consumer part of the indicator was far more dismal at 51.3, with a third of households saying they are just making ends meet, according to the Bank of Ireland’s latest Economic Pulse Index – its second lowest reading – down 4.1 points from May and 24.8 lower than a year ago.
“Global markets have been volatile lately as energy sanctions on Russia have been stepped up and major central banks stepped up their fight against inflation,” said Loretta O’Sullivan, chief economist at Bank of Ireland.
“Irish households were also on edge as the Consumer Pulse retreated in June after rallying in May.”
The Bank of Ireland said consumer price inflation is putting households in an income squeeze, with one in three saying they are just making ends meet, up from one in four at the start of the year.
Low-income households were hit hardest, with just over half saying they were under financial stress.
Likewise, Goodbody said in its quarterly Economic Health Check that inflation is now “eating away household incomes,” prompting the stockbroker to lower its forecast for domestic growth next year to 2.5 percent from 3.3 percent.
“Inflation is now the biggest near-term concern,” Goodbody chief economist Dermot O’Leary said. “Like the US and UK, inflation in Ireland is expected to approach 10 per cent by the end of the summer, with real incomes projected to fall by up to 4 per cent in 2022, the sharpest fall since the aftermath of the pandemic [financial crisis].”
But households and businesses are in much better shape than they were in 2007, with lower debt levels and far higher savings to protect them from the twin challenges of higher prices and higher borrowing costs, he said.
Indeed, the overall economic picture is mixed and several other indicators point to the resilience of the Irish economy, according to Goodbody.
GDP is back above pre-pandemic levels on a strong multinational sector, domestic spending has increased and full employment prevails.
All of this is contributing to one of the strongest expansions in the eurozone, with Goodbody still forecasting the Irish economy to grow 4.7 per cent this year despite a modest fall in consumer spending.
Goodbody also noted a modest increase in lending to businesses as government Covid supports ended – a sign companies are investing to meet increased demand.
These positive factors have contributed to a strong position in public finances, with a budget surplus now “on the horizon”, Mr O’Leary said.
He added he expects Treasury Secretary Paschal Donohoe to use some of the firepower from strong tax revenues to ease the cost-of-living crisis with “targeted supports,” echoing last week’s quarterly economic commentary from the Economic and Social Research Institute.
https://www.independent.ie/business/irish/consumer-mood-starts-to-wilt-as-inflation-hits-income-41792578.html Consumer sentiment begins to wither as inflation hits income