Consumer sentiment begins to falter as inflation hits incomes

The overall index fell 3.9 points in June to 78.8, 11 points lower than in June 2021.

But the consumption part of the indicator was much grimmer 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 reading the lowest – down 4.1 points in May and 24.8 lower. than a year ago.

“Global markets have been volatile lately as energy sanctions against Russia have been widened and major central banks have upped the ante in their fight against inflation,” the bank’s chief economist said. of Ireland, Loretta O’Sullivan.

“Irish households were also jittery as the Consumer Pulse fell in June after rebounding in May.”

The Bank of Ireland said consumer price inflation was putting pressure on households, with one in three saying they were just making ends meet, up from one in four at the start of the year.

Low-income households have been hardest hit, with just over half reporting experiencing financial hardship.

Similarly, Goodbody said in its quarterly Economic Health Report that inflation is “now eating away at household incomes”, prompting the stockbroker to lower its forecast for domestic growth next year from 3.3% to 2. .5%.

“Inflation is now the biggest short-term concern,” said Goodbody chief economist Dermot O’Leary. “As in the US and the UK, inflation in Ireland is expected to approach 10% by the end of the summer, real profits are expected to fall to 4% in 2022, the biggest drop since the consequences of the [financial crisis].”

However, households and businesses are in much better shape than in 2007, with lower debt levels and much higher savings to protect them from the twin challenges of rising prices and rising costs of loan, 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 thanks to a strong multinational sector, domestic spending has increased and full employment is in place.

All of this contributes to one of the strongest expansions in the euro zone, with Goodbody still predicting 4.7% growth for the Irish economy this year, despite a slight decline in consumer spending.

Goodbody also noted a small recovery in business lending as government Covid supports expired – a sign that businesses are responding to increased demand with investment.

These positive factors have contributed to a strong position in public finances, with a budget surplus now “in sight”, Mr O’Leary said.

He added that he expected Finance Minister Paschal Donohoe to use some of the firepower of strong tax revenues to help ease the cost of living crisis with “targeted supports”, echoing to last week’s quarterly economic commentary from the Institute for Economic and Social Research.