The pressures facing Irish consumers are fading but are far from finished, according to the Credit Union Consumer Sentiment Index, which showed the mood among consumers improved fractionally in July.
Economist Austin Hughes said holidays and summer sales likely encouraged a pick-up in spending plans.
However, a slight pull-back in household financial circumstances suggests consumers remain cautious, implying restrained rather than runaway spending in the months ahead.
The Credit Union Consumer Sentiment Index posted a marginal increase in July, increasing to 64.5 from 63.7 in June.
This 0.8 point increase suggests no material change in Irish consumer sentiment in July but it does mark the fourth month in a row that sentiment has improved and the seventh gain in the past eight months.
The ongoing recovery in sentiment from the 14 year low seen in September 2022 suggests consumer fears are continuing to ease.
However, with the July sentiment reading of 64.5 still well below the pre-Ukraine war reading of 77.0 of February 2022, Mr Hughes said, this month's report also clearly indicates that any recovery has still some distance to go before it can be considered complete.
"The details of the survey also give a strong sense of an Irish consumer still being buffeted by strong economic and financial cross-currents in a very uncertain world," he said.
The survey period saw the publication of strong mid-year Exchequer returns and the Government’s Summer Economic Statement both of which heightened expectations of significant increases in public spending and income-supporting tax adjustments in the upcoming Budget.
"In contrast, consumers were a little more cautious on the outlook for the jobs market in July. This could have been prompted by continuing concerns around the 'tech’ sector as well as the closure of Tara mines," Mr Hughes said.
Irish consumers were a little more negative about their household finances in July, both in terms of their recent experience and prospects for the year ahead.
Although inflation has continued to ease, the annual rate of 6.1% reported for June suggests cost-of-living pressures remain substantial. Moreover, a sequence of sharp increases in ECB interest rates is now adding an important additional source of pain and problems for a range of households.
The economist said it is also likely that holiday spending plans may have caused consumers to downgrade their assessment of their household finances in July.
"The details of the official inflation release for June saw package holiday prices up 43.2% year-on-year, airfares up 34.2% and domestic accommodation costs up 13%. Increases of this magnitude would undoubtedly put a significant hole in the holiday spending power of Irish consumers and could have adversely affected their assessment of their own financial circumstances."
The Credit Union Consumer Sentiment Survey for July contained a couple of supplementary questions focussed on Irish consumers thinking on the outlook for inflation.
First of all, consumers were asked where they thought the rate of inflation in Ireland would lie in twelve months' time. The most common view was that inflation would be in the 4-5% range in a year’s time but, around this mode, somewhat more consumers expected a higher rather than a lower inflation outturn.
"In terms of a specific number, the inflation rate for the next twelve months expected on average by Irish consumers can be taken as either the median which we estimate at 4.8% or the mean at 5.5%.
Given the degree of uncertainty about the future, we would caution against any spurious precision in this regard and suggest that Irish consumers think inflation next year will be around 5%."
Mr Hughes said it appears that Irish consumers expect a clear if limited easing in inflation in the year ahead. However, in line with international studies of consumer inflation expectations, there is quite a large variation in consumer thinking and some distinct demographic differences.
He said younger consumers are notably more likely to expect lower inflation than older consumers.
Those aged under 45 were about twice as likely to see inflation at 2% or lower in a years’ time than their older counterparts. Hower, the share of consumers seeing inflation at 6% or higher was broadly similar in the two age groups, suggesting views diverge more among younger age groups.
Female respondents were somewhat more likely to expect higher inflation and slightly less likely to predict lower inflation but the most notable gender difference was that uncertainty about the inflation outlook was notably less pronounced among males than females; female respondents were two and half times more likely to respond that they didn’t know or were unsure about the inflation outlook than their male counterparts.
Those consumers who say they have difficulty making ends meet were twice as likely to say they expect inflation to be 8% or higher as those who say they are managing without difficulty.
In general, the responses given by Irish consumers to the question in relation to the drivers of inflation suggest that cost of living pressures are seen focussed on a few key areas.
"The concentration of responses in relation to inflation drivers suggests that Irish consumers do not see inflation in terms of an 'overheating’ Irish economy story," he said.
"Rampant energy and food costs are essentially a global story as is the rise in interest rates. The emerging importance of higher borrowing costs as an additional source of pressure on household finances is also a complicating factor in terms of calibrating the scale and nature of any fiscal support measures in the upcoming Budget."