The State is experiencing the biggest consumer spending spree in its history, according to the latest figures released by the Central Statistics Office.
In January, consumers shopped like never before, buying more cars and borrowing more money as the economy continued to expand. Further tax cuts due over the next few weeks as Budget provisions take effect are likely to add to the momentum.
The value of retail sales was up 17.1 per cent in January compared with the previous year, while the volume was up some 16.5 per cent, which is an "extraordinary figure", according to Dr Dan McLaughlin, chief economist at ABN Amro. Cars made up a large part of the increase, rising almost 50 per cent from a year earlier.
A lot of this was made up of a special once-off millennium factor with consumers rushing to buy 2000-reg cars in January. New car sales for the first three months of this year are running at more than 100,000, compared to 75,000 in the same period last year, according to the Society of the Irish Motor Industry.. But when car sales are removed from the latest figures, there was almost no inflation in consumer prices evident - indicating that competition is preventing price rises.
According to Dr McLaughlin, this strongly vindicates the view that inflation in a small open economy such as Ireland is externally determined. "Particularly given the background of the weak euro, the lack of price pressure implies the level of competition in the high street must be ferocious."
When the figures are examined for a three-month period - which is generally considered a more reliable measure - consumer spending growth in the quarter ended January was a record of 4.6 per cent higher than the previous three months. As Mr Jim O'Leary, chief economist at Davy Stockbrokers, notes, the figures are "the best evidence yet that we are truly reaping the benefits of EMU membership".
He added that the feel-good factor from the December Budget had added to consumer euphoria and this would amplified when the impact of the tax cuts comes through this month.
The figures are likely to add to the concerns expressed by bodies such as the European Central Bank and the European Commission about overheating in the economy. But the lack of inflation and the additional importing of many goods, particularly cars, ought to ease such concerns somewhat. Nevertheless, according to Dr McLaughlin, the figures, combined with very high tax receipts in the year to date, suggest the economy is actually growing far faster than anyone has predicted and possibly still at around 10 per cent, measured by the annual rise in Gross Domestic Product.
Credit lending figures released yesterday also underlined this argument, with no sign of a slowdown even beginning to emerge. Lending rose 34.9 per cent to the end of February compared with 32.6 per cent at the end of January.
Allowing for special factors, such as the merger of Irish Life and Permanent, the year-on-year rise was 29 per cent, from 25 per cent in January. But not all this money was going to consumers. Dr McLaughlin said that according to recent Central Bank data, the State was also experiencing a massive investment boom. Personal credit was up 26 per cent to the end of December while real estate lending was up 51 per cent.
