Consumer mood at highest level in two years

CONSUMER SENTIMENT unexpectedly rose to its highest level in two years last month, signalling a marked improvement in the mood of Irish consumers.

The overall KBC Ireland/ESRI Consumer Sentiment Index rose to 64.6 in January from 53.3 the previous month.

While the 11.3 point increase was the strongest monthly change since December 2004, KBC’s chief economist, Austin Hughes, cautioned against concentrating on the scale of the increase, admitting it looked ‘‘suspiciously large’’.

‘‘It is likely that the sharp improvement in the buying climate will be at least partly reversed in the February survey as Christmas sales end and bills arrive,’’ he said.

‘‘However, it seems clear that the mood of consumers is brightening, reflecting an easing in fears about economic prospects and perhaps a generally positive assessment of the December budget.’’

He noted that the January reading did not suggest ‘‘irrational exuberance’’ had taken hold of Irish consumers.

‘‘Even after January’s increase, current levels of the survey suggest consumers remain fairly cautious but they are notably less pessimistic than they were,’’ he said.

The survey showed the underlying trend in consumer sentiment continues to improve.

The survey’s three-month moving average, which gives a better indication of the trend, rose to 57.2 last month from 53.7 in December.

ESRI economist David Duffy said: ‘‘The sharp improvement in consumers’ perceptions of the current environment reflects the view that January was a good time to purchase major items.’’

‘‘Historically this component has improved every January, reflecting, at least in part, the winter sales, followed by a more subdued figure in February.

‘‘We expect this pattern to continue and as a result some moderation might be anticipated next month.’’

Meanwhile, European investor confidence dropped for the first time in seven months in February.

An index measuring sentiment across the 16 euro zone countries fell to -8.2 from -3.7 in January, the Limburg, Germany-based Sentix research institute said yesterday.

A gauge of current business conditions fell to -19.5 from -17.5, while a measure of expectations dropped to 3.75 from 11.25.

‘‘The data indicate a serious clouding of the economic prospects for the euro area,’’ Sentix said.