Consumer sentiment weakened slightly in August, signalling no major change in the mood of Irish consumers of late.

While the monthly drop in the latest KBC Bank Consumer Sentiment Index was modest, it was sufficient to deliver a new 22 month low in the index.

The sentiment index is based on a survey of 1,000 adults undertaken by Core Research in the first two weeks of August.

Economist Austin Hughes speculated that unusually favourable weather through much of the survey period supported sentiment.

The index fell to 53.4 in August from 53.7 in July, its lowest level since October 2020 when it hit 52.6.

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The latest reading is some way above the pandemic low point of 42.6 seen in April 2020 and the all-time low of the series recorded in July 2008.   

“A modest improvement in consumers’ assessment of their financial circumstances through the past 12 months could point towards resilience in household spending power as well as a response to some suggestions that inflation may have peaked,” Hughes added.

The KBC survey questioned respondents about the impact higher borrowing costs will have on their financial and economic circumstances.

Some 69% of responses reflected an expected negative impact on personal financial circumstances from higher ECB rates, and only 9% of responses suggested their circumstances might be expected to improve.

About one in four consumers expect higher ECB interest rates to affect them indirectly by weakening economic activity and thereby weighing on their income and employment prospects.

One in five consumers acknowledges they will face increased borrowing costs, while one in six respondents say they feel higher ECB interest rates will reduce their chance of purchasing a home.

Only 1% of consumers see higher interest rates affecting the property market in a manner that might improve their prospect of homebuying.

Austin Hughes commented: “Any additional restraining impact of higher ECB rates on economic activity is seen compounding an environment already made extremely difficult by surging living costs and other fallout from the war in Ukraine and, for many consumers, a still incomplete financial recovery from the pandemic.

“Survey respondents don’t believe that higher ECB interest rates will do much to curb inflation. The strong message is that higher interest rates will add to rather than ease the difficulties that Irish consumers now face.”

Photo: Austin Hughes