Consumers cut discretionary spending in response to inflation

Irish consumers have cut their spending on discretionary items such as clothes and hardware in response to the current price squeeze.

The latest AIB retail spend outlook report showed that discretionary spending in the economy here declined in the third quarter of this year when compared to the same period last year.

While overall sales rose by 3.8 per cent in value terms, this rise can be explained by a rise in prices. In the third quarter, consumer prices were 8.6 per cent higher than in 2021, outpacing the rise in spending.

Non-discretionary spending was up versus the same period in 2021. Groceries, the largest retail sub-sector, and pharmacies saw a 4 per cent increase in spending, while the bakery sub-sector saw the largest increase in sales (+12 per cent), potentially influenced by increased socialising and social events.

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The return of consumers to bars and restaurants has likely negatively affected the off-licence performance, which saw a 9 per cent decrease in spending.

“A decrease in spend for discretionary sectors shows some evidence of consumers starting to tighten their belts in response to inflation,” AIB said.

Hardware stores saw the largest decrease in spending, with a 22 per cent decline in spend, while electrical goods saw a 9 per cent decrease. Consumers spent 4 per cent less in clothing stores.

Speaking about the report, AIB’s head of retail sector Alan Makim said: “We are all aware Ireland is experiencing a period of inflation, driven in part by significant increases in energy costs.

“The energy cost spike is acutely felt by many retailers as it has the dual impact of increasing operating costs for their businesses while also reducing discretionary cash available for consumers to spend,” he said.

“Our data shows that while spending is up in Q3 2022, this is mostly due to an increase in prices rather than a rise in the volume of purchases. While consumers may start to become more value-focused when purchasing discretionary items, the grocery and pharmacy sectors will retain priority in household budgeting,” he said.