A perception among consumers that living standards are under threat from a “seemingly relentless upward spiral” in the cost of food and fuel drove sentiment to a record low in June.
The IIB/ESRI index of consumer sentiment, published today, dropped to 42.2 in June, down from 48.8 in May. This is the lowest reading since the index began in 1996.
Austin Hughes, IIB chief economist, said last month the cost of fuel rose by over $12 a barrel to $138 contributing to a growing perception that household budgets were facing relentless cost increases.
Consumers were increasingly pessimistic of the strength of their finances for the coming year and this was leading to a spending slowdown, the index said.
Mr Hughes said the pattern in Ireland was being replicated around the world with borrowing, fuel and food costs all increasing at a time when the jobs outlook has deteriorated.
Unique to Ireland were a number of lay-offs last month and a further rise in the number of people signing on the Live Register. At the end of May the number of people in the register was 207,300, a rise of 26.7 per cent over the year. The standardised unemployment rate in May was 5.4 per cent.
Mr Hughes said the Government's revenue shortfall meant consumers were bracing themselves for a tougher budget in December, and this points towards a risk of a further slowdown in consumer spending over the coming months.
Where previously-reduced spending was seen as reflecting caution, the June index suggests that rising prices have consumed "a good deal of the available discretionary spending power".
Any spare cash is more likely to be spent on holidays overseas "to escape the current gloom" than on household or retail items.
With the European Central Bank (ECB) almost certain to increase interest rates on Thursday, Mr Hughes said the prospect of one or more rate rise and its impact on monthly loan repayments "is a significant cause of concern to many Irish borrowers".
The cumulative impact of these negative forces is "consumer sentiment is extremely sour" and responding to the "almost relentless stream of bad economic news.
Mr Hughes says it was likely that concerns raises during the Lisbon referendum probably contributed to the "feel bad factor" and may have resulted in a level of support for the No side in the form of a protest vote
