Fears over interest rates weigh heavily on consumer sentiment

CONSUMER SENTIMENT weakened in June, recording its lowest reading since February, as consumers become increasingly concerned about the ongoing debt crisis, possible interest rate hikes and household charges.

The KBC Bank Ireland/ESRI Consumer Sentiment Index fell to 56.3 this month, from 59.4 in May. In June 2010, the reading was 67.9. However, the index remains far above the all-time low of 39.6 that was recorded in July 2008.

This fall was also seen in other countries this month, with both US indicators and euro zone confidence flash estimates edging lower.

An expected bounce in sentiment in the wake of visits by US president Barack Obama and Queen Elizabeth failed to emerge, reflecting instead negative developments that have caused some pullback from a healthier trend in much of the first half of the year.

“The decline is mainly due to consumer concerns about the future,” said David Duffy, ESRI. “Consumers perceptions about the current environment only showed a marginal decline.”

The expectations index fell below the 50 mark that separates expansion from contraction, declining to 46.2 in June, from 50.8 the previous month.

Mr Duffy said this was due to negative perceptions of the outlook for the labour market and for future household finances.

The index of economic conditions fell to 71.5 in June from 72.1 the previous month.

“The June sentiment survey is disappointing but not entirely surprising. While Irish consumers are adapting to tougher conditions, they face a wide variety of pressures ranging from job worries to a continuing squeeze on spending power that higher ECB interest rates in July and household charges in 2012 will make even more difficult,” said KBC Ireland chief economist Austin Hughes.