Consumer sentiment fell to a post-global financial crash low in September as consumers braced for an expensive winter following significant price hikes by energy providers.

The drop in consumer confidence contrasts with improvements in the US, suggesting domestic development are responsible for the latest shortfall, according to analysis of KBC Bank Ireland's Irish consumer sentiment index by economist Austin Hughes.

The sentiment survey was conducted between 4th and 15th September, across 1,000 adults by Core Research.

The survey period saw announcements of sharp increases in the price of consumer gas and electricity from October, record inflation in the price of groceries, and a jump in borrowing costs due to the European Central Bank base rate increase.

The index fell from 53.1 to 42.1 in September, marginally lower than the 42.6 reading posted in April 2020 at the outset of the first Covid lockdown and slightly higher than the 42.0 figure recorded in October 2008.

In Association with

Hughes said economic conditions are not as bad as during the crash, but that the sentiment reading signals a "sea-change on consumer thinking in relation to their economic and financial circumstance".

Hughes added: "The normal expectation of an improving environment built on gains in employment and incomes is now being replaced by worries around fast and furious increases across a range of living costs allied to the threat that energy might be unavailable as well as unaffordable."     

Hughes believes the collective ‘muscle memory’ of the lasting difficulties experienced in Ireland in the wake of the global financial crisis is a factor in the erosion of consumer confidence.

All elements of the survey experienced sharp drops, but they were most pronounced in the aspects focused on consumers' household finances.

"The prospect of markedly higher energy bills through the winter months allied to more broadly based inflation pressures threaten a marked adjustment in living standards and spending," Hughes stated.

"Concerns around the broader economy are likely to be the result of consumers extrapolating their own difficulties across the entire range of households and firms and judging that this will translate into a marked slowdown in spending."

Respondents were also asked how much offsetting support to current cost of living pressures might be provided in the upcoming budget and what impact such actions might have on the outlook for inflation.

There was little expectation of a complete 'Covid-style' fiscal offset to cost of living pressures.

Nearly half of consumers in the survey expect a material support package that would at least somewhat offset price pressures.

Hughes said inflation could average 8.5% for the year, compared to 2.4% in 2021, reducing consumer spending by €6.5bn, or €3,300 per household. He said a budget package of €2-3bn coupled with €2bn in already announced measures would go some way to offsetting the damage.

"However, these admittedly very rough calculations together with the divided thinking of consumers on the likely inflationary impact of the budget suggest there are risks in doing too much as well as doing too little in terms of fiscal support, aside from the impact on the public finances."

(Pic: Getty Images)