Official figures show a weak start to 2012 for consumer spending, after signs of a slight pick-up late last year.
The Central Statistics Office said the volume of retail sales in January fell by 3.7% from December, the first monthly fall since September. Some economists said the rise in the top rate of VAT on January 1 was likely to have affected the figures.
The main factor was a 21.3% slump in sales in the motor sector during January. Compared with January last year, sales were down 0.8%.
Even excluding the motor slump, sales still fell by 1.6% in January, giving an annual drop of 2.7%. Many economists prefer to focus on these figures as there have been big swings in motor sales over the past two years.
A breakdown showed a sharp fall of 18.4% in sales at department stores during January, and sales of electrical goods dropped 12%. Sales of clothing and footwear were down 5.7%, and bar sales dropped 3.5%. Furniture sales increased by 5%, however, and food and drink sales gained 2%.
The value of sales, which takes prices into account, also fell by 3.7% during January, giving an annual fall of 0.3%.
VAT rise likely to have affected sales
Retail Excellence Ireland said the sales drop was disappointing but not unexpected as consumer confidence remained low.
REI chief David Fitzsimons said its members were reporting that a two-point rise in the higher rate of VAT from January 1 was depressing spending. He said another tough year for the retail sector was unavoidable.
Davy economist Conall MacCoille said the effect of the VAT rise was apparent in the big drops in sales in the department stores, electrical goods and vars categories - as these were more likely to be subject to the top rate of VAT.
He said this confirmed his view that sales late last year were boosted by consumers bringing forward bigger buys to avoid the VAT rise. The economist said the outlook for the sector remained weak.
But Goodbody economist Dermot O'Leary said the figures indicated that retailers found it difficult to pass the full VAT increase on to price-sensitive consumers.
