Consumer confidence fell sharply in May as the prospect of rising interest rates and oil prices offest good news about jobs growth in the economy, according to a survey published today.
The IIB Bank/ESRI Consumer Sentiment Index weakened to 92.3 in May compared to 98.8 in April.
David Duffy of ESRI, said: "Consumers feel that economic news has been negative over the past month, citing rising prices, particularly energy prices, and higher interest rates."
Consumer sentiment has worsened in three of the past four months suggesting the fundamental strength of the economy is not transmitting a "feel good" factor to consumers.
"The average consumer still feels his or her spending power is being squeezed by a seemingly relentless rise in energy costs and a more worrying outlook for borrowing costs," according to Austin Hughes of IIB Bank.
Economists agree that the sharp rise in inflation since the turn of the year has weighed on confidence. Between December 2005 and April 2006 the increase in consumer prices jumped from 2.5 per cent to 3.8 per cent.
With wage growth remaining relatively modest, a sharp acceleration in living costs means real spending power is not growing nearly as much as may have been anticipated.
"For many debt-burdened Irish consumers, the risk of a larger interest rate hike this month and/or a long series of rate hikes stretching into 2007 would represent a substantial blow to their household finances.
As a result, the prospect of markedly higher borrowing costs seems to have contributed forcefully to the downturn in sentiment," Mr Hughes added.
Although the labour market is very strong at present, many Irish people feel less secure in their jobs due to a number of high profile job losses and a continuing haemorrhage of manufacturing jobs.