Irish households are expressing concerns over the European Central Bank’s (ECB) aggressive monetary policy, as they believe it is contributing to rising living costs. Consumer sentiment has fallen for the first time in five months, with households feeling less confident about their own finances and the broader economy. Many consumers believe that the ECB’s current monetary policy is not effectively addressing inflation, and they fear that higher interest rates will harm the Irish economy. Economist Austin Hughes, who conducted the Credit Union Consumer Sentiment Survey for August, highlights that rising interest rates are impacting more than just mortgage holders, with credit card users also feeling the pinch. The survey also reveals that prospective homeowners and renters are worried about the knock-on effects on their borrowing capacity and monthly rental payments. Only 6% of respondents reported a positive impact on their household finances, indicating that the high number of Irish consumers experiencing financial difficulties may not be surprising given the existing cost of living pressures. Mr. Hughes suggests that the cost of borrowing has become a critical issue for some consumers in making ends meet.
Despite concerns about their own households, consumers are even more negative about the broader economy. Mr. Hughes notes that these responses align with recent findings from the Central Bank of Ireland, which suggest that continuous rate hikes could lead to a 3% reduction in employment, equivalent to nearly 80,000 job losses. The majority of Irish consumers believe that the direct impact of higher borrowing costs will outweigh the indirect restraining impact of tighter ECB policy on demand and consumer prices. Additionally, almost 70% of consumers believe that higher rates will have a negative effect on the property market, as reduced borrowing capacity and a weakening outlook are expected to dampen housing demand.
Despite the overall negative outlook, consumer spending plans have actually increased month-on-month. This modest rise has lifted the buying climate to its highest level in 17 months. Mr. Hughes suggests that this improvement is due to a decrease in concerns rather than a surge in optimism. He also highlights that attractive summer sales, along with special offers on cars and electronic goods resulting from an easing of supply bottlenecks, may be contributing to increased spending plans. Many Irish households have postponed purchases of consumer durables in recent years, so as fears related to the pandemic and the situation in Ukraine have subsided, there may be some catch-up in the normal replacement cycle.