Consumer sentiment lifts for first time in seven months (The Irish Times)

04 November 2011

Consumer sentiment rose modestly this month, as consumers responded positively to summer sales and were less concerned about rising interest rates and oil prices, though the outlook for the economy remains gloomy.

The consumer sentiment index compiled by IIB Bank and the Economic and Social and Research Institute (ESRI) increased for the first time in seven months to 43.4 in August from 39.6 in July – the lowest level since the survey began in 1996.

The index, compiled from a survey of 800 people during the first two weeks of this month, was still well below the 72 recorded last August and the 67 reading recorded at the start of this year.

Austin Hughes, chief economist at IIB, attributed the increase this month to higher consumer spending in the summer sales and a more positive outlook on interest rates and oil prices.

“Consumers saw bargains in the summer sales and it is still good news that consumers have the wherewithal and inclination to respond to cheaper prices.”

Mr Hughes said the European Central Bank’s signal that interest rates had reached a peak and the sharp fall in oil prices, both of which have a significant bearing on household costs, had generated confidence among consumers.

However, he cautioned that the index showed that consumers were “slightly less negative”.

“It is still a very negative reading but it has improved, so consumers haven’t entirely given up the ghost.

“It is encouraging but it is not signalling that there has been a dramatic improvement.”

He said the latest reading of the index suggests “a fairly gloomy mood that is consistent with very subdued levels of spending”.

David Duffy, economist at the ESRI, said: “ Consumers are still cautious and we will need to see if this is a sustained improvement.”

The European Central Bank left its main interest rate at 4.25 per cent on August 7th, saying economic growth would be “particularly weak” through the three months to the end of September.

This has reduced fears that the bank will increase rates again.

The ECB’s base rate has risen from 2 per cent since December 2005, after remaining unchanged for 30 months, as the bank has attempted to curb rising inflation across the euro zone.

Irish retail sales fell 5.2 per cent in the year to June, the biggest annual fall since January 1987.