A portion of the mountain of money accumulated in pandemic savings is being depleted to cover the rising cost of living for households.
Overall, prices were up 6.7% in March compared to the same month last year, the latest CSO figures show.
These price pressures and the invasion of Ukraine have led to a reduction in consumer spending, according to a survey by KBC Bank Ireland.
The study also indicates that some of the €24bn in pandemic savings accumulated over the last two years may already have been used up, with the money used to pay bills skyrocketing.
This means that the financial safety nets for many households are becoming limited, according to the lender.
Households where people were able to work from home during the shutdown saved more.
This was due to restrictions and closures that limited spending, difficulties in going on vacation, and consumer caution that led them to spend less and save more.
They were helped by the closure of nurseries and reduced commuting, as most people were working from home.
Overall, household deposits rose sharply in 2020 and last year, to €24.5bn, according to the Central Bank.
But the KBC Consumer Confidence Index for April indicates that sharply rising inflation is causing these pandemic savings to dwindle as purchasing power has plummeted.
An additional question was asked as part of the April survey to see how consumers would handle a financial emergency costing €1,000. Just over a third would use their savings to pay for a major car repair or to fix their heating system, it found.
This is down from previous years when more people said they could draw on their savings to get them out of a financial emergency.
KBC Bank economist Austin Hughes said this suggested “that for some households, the savings built up during the pandemic have been significantly depleted.”
Additional savings at banks and credit unions accumulated during the shutdowns were expected to be unleashed in a spending spree on big-ticket items like cars and vacations.
But the scale of the price increases means some of it is being used for day-to-day living expenses.
Only 12% of consumers could finance a financial emergency with their current income.
The economic turmoil caused by the war and the supply chain problems that preceded it meant that consumer confidence fell to an 18-month low.
The index fell from 67 in March to 57.7 in April.
The index is now well below its long-term average of 86.6, indicating that consumers are very nervous, Hughes said.
Overall, the 24-point decline in the survey for the three months from February to April is the second largest in the 26-year history of the KBC Bank survey.
It is second only to the collapse in sentiment when Covid-19 shut down the economy in the spring of 2020.
The prospect of a larger and more lasting rise in living costs, along with the human and social consequences of the war in Eastern Europe, cast a shadow over the recent sentiment reading, the economist said.