Irish consumer sentiment improved sharply in November with the IIB/ESRI Consumer Sentiment index jumping to 94 from 85 the previous month. The November reading is the strongest since July.
IIB's Austin Hughes says the improvement was broadly based but the strongest gains relate to household assessment of their current financial circumstances. He says the main reason for this improvement was the 'dramatic' easing in oil prices in November. Petrol prices have slipped back towards €1 a litre during the month and the economist says that earlier fears of prices becoming stuck above €1.30 have all but disappeared.
He also says there has been growing expectations that Finance Minister Brian Cowen will deliver a 'very generous' budget next week, with measures expected to ease childcare costs. The Groceries Order was also abolished last month with the promise of savings on food bills.
Mr Hughes also says that a second driver of improving consumer confidence has been a series of upbeat commentaries on the economy and on the outlook for the Irish property market.
'The persistence of strong job growth and the resilience of the Irish housing market would have been expected to support a significant upgrading of economic prospects by consumers in the past month,' the economist says. He also said that the past month was notable for the absence of substantial negative shocks that weighted on sentiment in recent months like the 'Rip-off Republic' concerns and surging oil prices.
However, a less encouraging element of the November sentiment data was that the smallest improvement came in consumers' assessment of the current buying climate. The November reading edged above October's recent low point. But with the exception of the previous month, November was the poorest reading for this element of the survey since June 2004, the economist points out.
'On the basis of the historic relation between spending and sentiment, it would appear that the nominal value of spending growth might be expected to remain around its current pace of about 7.5% in the immediate run-up to Christmas,' Mr Hughes says.
He adds that consumer sentiment and spending will both be driven by a looming seasonal battle between 'Good Santa' in the form of Brian Cowen, and 'Bad Santa' in the form of ECB President Jean-Claude Trichet, who is set to increase euro zone interest rates later this week.
'While a rate hike - and the promise of more to come - will act to damage confidence, a carefully constructed budget package should be sufficient to keep Irish consumer sentiment and spending on an improving trend,' he concludes.
