Irish consumer sentiment is on the march again, climbing to a seven-year high in July, according to the latest KBC Bank/ESRI Consumer Sentiment Index.

This represents something of a rebound from May when sentiment unexpectedly tanked in the run-up to the European and local elections.

Significantly, the latest surge in Irish confidence is at odds with similar surveys in Europe and elsewhere, which suggest consumers have taken fright from the potential impact of international crises in Iraq and Ukraine.

As a result, the report’s authors concluded Ireland’s out-of-kilter optimism must be predicated on domestic events. Specifically, they pointed to better-than-expected economic growth figures released in June and more signs of a recovery in house prices.

In May, when the index fell, the decline was linked to the notion that while consumers believed economic recovery was taking place, they weren’t feeling it in their pockets.

Now we’re told the opposite is true, positive GDP numbers and rising house prices – both of which will have no impact on the household budget – are making consumers happy again. Such are the fickle ways of the consumer, it seems.

One might be tempted to rubbish the whole concept of measuring the degree of optimism people feel about the state of the economy and their personal financial situation. However, the link between confidence and spending is undeniable.

If confidence is high, consumers will make more purchases. Conversely, if confidence is lower, consumers tend to save more and spend less.

Following this paradigm to its logical conclusion, more spending creates more demand for produce which in turn boosts employment and wages, ultimately improving household income.

In essence, believing things are better can actually make things better.

That said, the latest confidence barometer suggests there is still a majority of negative responses to questions centring on household finances.

After all, real individual income has been falling on the back of the new taxes and charges for several years.

With that being the case, it may be that Irish consumers are merely expressing confidence in the long-term prospects for the economy and not their own personal circumstances.

This may explain why sentiment has been rising – albeit with the blip in May – without much of a pick-up in consumer spending.