The improvement in consumer sentiment seen in July could prove to be a blip as higher interest rates and surging energy prices weigh on household budgets in the coming months, economists have warned.
The July edition of the IIB Bank/ESRI Consumer Sentiment Index improved to 80.9 in July compared to 77.9 in June.
"Although sentiment has improved, there are indications that consumers remain cautious. The moderate increase reflects the fact that consumers continue to have a negative perception of some aspects, most notably their current financial situation and the outlook for the labour market," ESRI economist David Duffy said.
ESRI David Duffy
In addition, Austin Hughes, chief economist at IIB Bank, noted: "Although the monthly results improved in July, the underlying trend in consumer sentiment remains clearly downwards as it has been for most of this year."
"The slightly brighter mood among Irish consumers in July was probably the result of a sequence of positive reports on the Irish economy and, probably of greater significance, exchequer data that suggested Mr Cowen could be very generous in December's budget. Further price cuts in summer sales also probably helped," he added.
Mr Hughes warned that consumer sentiment could take quite a tumble in August as rising interest rates and higher energy costs are firmly on an upward path and this will be quite a blow to confidence.
Mr Hughes said the key message from the survey was that Irish consumers are cautious at present and a little concerned that generally strong economic conditions have not translated into markedly increased spending power for their households.
"However, the July sentiment results suggest that consumers are also fairly resilient. The barrage of bad news over the past few weeks could test the extent of that resilience, " Mr Hughes said.