Holidays a priority despite rising cost of living – KBC sentiment index
Irish consumers plan to spend more on holidays this year despite concerns about the rising cost of living, according to the latest KBC Bank Ireland consumer sentiment index.
The survey for May asked a special question on holiday spending plans, and the answer hinted at a resilience in people’s personal finances.
Austin Hughes, Chief Economist with KBC Ireland said, “For some consumers, the driving factor may be the nature and extent of current pressures that is intensifying the need to get away from it all”.
Given the degree of pressure on living costs at present, the increase in the number of consumers who say they cannot afford to go on holiday is relatively modest, to 23% of those surveyed in May 2022 from 19% a year ago.
Mr Hughes said this likely owes something to financial resilience but it could also be that many consumers are placing a greater priority on ‘getting away from it all’ in their household budgeting because of greater pressure in their everyday lives of late.
However, at almost one in four consumers, the survey does suggest a substantial portion of Irish consumers feel that a holiday is out of reach financially for them.
The limited change in this number from last year suggests that this is a persistent problem rather than one sparked by the recent surge in inflation. In the same vein, there is no increase in the number of consumers planning to materially curb their holiday spending this year.
While the most common response of those planning a holiday was to spend roughly the same as last year, the survey suggests that many Irish consumers have factored in higher holiday costs in their spending plans.
“This would also seem consistent with the view that many see a holiday break as an important priority in their household spend this year,” Mr Hughes said.
“However, the sharp increase to 8% from 5% in numbers planning to spend more than 20% extra on holidays in 2022 than in 2021, most likely includes some who spent nothing on holidays last year because of Covid concerns. Likely more telling comparisons are the increase from 8% to 11% in the number of consumers planning to spend up to 10% more this year.”
The resilience in planned holiday spending suggested in these numbers likely reflects several factors. Clearly, the opening up of travel after a couple of years of significant curtailments is one element.
A second influence is the still reasonably positive aggregate position of household balance sheets, with personal deposits in March 2022 some €10 billion higher than a year earlier and a marked €30 billion higher than in March 2020.
According to the main index, Irish consumer sentiment worsened for the fourth month in a row in May as concerns around the cost of living continued to build and worries about a global recession intensified.
Mr Hughes said the recent trend in the confidence survey suggests Irish consumers are attempting to adjust to an altogether more painful reality in terms of their immediate circumstances and the broader economic environment than appeared remotely possible a few short months ago.
The KBC Bank Ireland consumer sentiment index slipped to 55.2 from 57.7 in April. While that 2.5 point decline was notably smaller than in any of the three preceding months, it remains the case that consumers feel that both the current conditions they face and the outlook they expect continue to deteriorate.
The continued but modest slippage in the sentiment index suggests consumers are still trying to assess both the extent and duration of the worsening in economic conditions at home and abroad.
It is unusual but not unprecedented for confidence to drop for four months in a row, KBC said.
The previous four occasions this has happened in the 26 year history of the survey reflected circumstances in which consumers faced marked difficulties in assessing potentially momentous changes in economic conditions.
The most recent occasion that Irish consumer sentiment slipped for four consecutive months was in the summer of 2019 when it appeared a chaotic and very damaging Brexit was threatened.
Prior to that, it was when the scale of potential damage caused by the financial crisis seemed to crystallise in the summer of 2010.
Before that, it was when the global financial crisis loomed large in the first half of 2008 and the first time the sentiment index fell for four months running was when the Dotcom bubble burst in 2001.
“Judged from this perspective, it would seem that Irish consumers are still trying to properly assess how large and how lasting the current pressures-largely centred on surging inflation, may prove to be,” KBC’s chief economist said.