Consumer confidence falls to 10-month low amid cost of living and Covid fears

Irish consumer sentiment fell to its weakest reading since February in December as concerns around Covid-19 and the cost of living intensified, according to the KBC Bank consumer sentiment index.

The drop in the index signals “a clear and material deterioration” in the mood of Irish consumers of late but “not a complete collapse in confidence”, according to the bank’s chief economist Austin Hughes.

“The sense that the pandemic and price pressures may prove more persistent and problematic than previously thought – and the ghosts of previous spikes in both – mean the December sentiment index speaks of seasonal fear rather than seasonal cheer,” he said.

However, he added the data does not suggest the Irish consumer is in freefall. “Nor are these concerns unique to Irish consumers,” he said.

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The index fell to 74.9 in December from 83.1 in November, bringing it to its lowest level since February (70.8). December also saw the biggest monthly fall (-8.2) since January (-9.7). It was also the third largest monthly fall since the pandemic struck.

While altogether more measured than the precipitous decline of 34.7 seen in April 2020, the December change “suggests Irish consumers are bracing themselves for a difficult period to come”, Mr Hughes said.

Although both weakened relative to November, the best performing elements of the survey were consumer thinking on how their personal finances will evolve in the next 12 months and their assessment as to whether now is a good time to buy major items.

‘Subdued Christmas’

“Together with the impact of recently increased restrictions, the drop in Irish consumer confidence in December might be interpreted as pointing towards an uneven and possibly sluggish or subdued Christmas rather than a slump in spending.”

Mr Hughes said that while consumer sentiment and spending have both been getting progressively more resilient to each new wave of Covid-19, this is “altogether different to the emergence of complete economic immunity to the virus”.

He said four factors may have combined of late to amplify “consumer nervousness”.

“The first two of these are health considerations. The first being the likelihood that consumers have been unsettled by the speed of emergence of the Omicron variant allied to the degree of uncertainty as to its medical impacts.

“A second related consideration . . . is the potential for a recurrence of the intensity of problems seen in the wake of the emergence of the so-called UK variant of Covid-19 at Christmas time a year ago.”

The sustained surge in inflation, particularly in energy costs, is also a factor along with the impact of health restrictions on employment. “In this context, it should be noted that the sharpest decline by some distance is in relation to the outlook for jobs.

“This suggests that consumers see particular risks in this regard. Clearly, the longer and/or the more often the activities of certain sectors are curtailed, the greater the risk of permanent losses in future output, incomes and employment in these areas.”