|Source: CSO |
Annual Irish Inflation as measured by the Consumer Price Index (CPI), increased by just 0.1% in the April, according to the CSO. This compares to an increase of 0.8% in April of last year. As a result, the annual rate of inflation fell to 4.3%, down from 5.0% in March 2008.
The EU Harmonised Index of Consumer Prices (HICP) increased by 0.1% in the month, compared to an increase of 0.5% in April 2007. The annual rate of inflation, as measured by the HICP, decreased from 3.7% in March to 3.3% in April.
The most notable changes in the year were increases in Housing, Water, Electricity, Gas & Other Fuels (+9.7%), Food & Non-Alcoholic Beverages (+8.1%), Health (+6.2%) and Education (+5.8%). There were decreases in Clothing & Footwear (-2.8%) and Furnishings, Household Equipment & Routine Household Maintenance (-1.0%).
The annual rate of inflation for Services was 4.8% in April, while Goods increased by 3.8% in the year.
The most significant monthly price changes were increases in Restaurants & Hotels (+1.1%), Health (+0.5%), Miscellaneous Goods & Services (+0.4%) and Housing, Water, Electricity, Gas & Other Fuels (+0.3%). There were decreases in Transport (-0.9%) and Furnishings, Household Equipment & Routine Household Maintenance (-0.2%).
Food and Non-Alcoholic Beverages rose 8.1% in the 12-month period.
The main factors contributing to the monthly change were as follows:
- Transport fell due to decreases in airfares, which were partially offset by higher petrol and diesel prices and increased bus fares.
- Restaurants & Hotels rose due to higher prices for hotel accommodation and increases in the price of alcohol consumed in licensed premises
- Health rose due to an increase in hospital charges.
- Miscellaneous Goods & Services rose due to increases in houseinsurance premiums, childcare and hairdressing.
- Housing, Water, Electricity, Gas & Other Fuels increased due to higher average mortgage interest repayments and further increases in the cost of home heating oil.
The CPI excluding tobacco index for April was up 0.1% in the month and up 4.3% in the year. The CPI excluding energy products index was up 0.1% since March and increased by 4.1% in the year. The CPI excluding mortgage interest increased by 0.1% in the month and rose by 3.5% in the year.
Pat McArdle, Chief Economist of Ulster Bank commented:
The April CPI outcome was 4.3%, down from 5.0% in Mar and well below the Reuters consensus forecast of 4.7% but not that far off our own forecast of 4.4%.
This outcome was broadly predictable because some major factors were pointing to a lower inflation rate this month. First, mortgage interest rates rose by 6% in April 2007, reflecting the passing on of a quarter-point increase in the ECB’s key rate a month earlier – this alone added 0.43% to the April 07 CPI. This year, by contrast, the increase in the mortgage payments part of the CPI basket (such payments account for 6.7% of the average monthly shopping bill) was only 0.5% which added 0.04% to the rate. As the increase a year-ago now drops out of the comparison, the effect is to lower the annual rate by the difference, 0.39%, bringing it down from March’s 5% to 4.6%. This was well-known and would have been factored into most forecasts.
Less well known but also significant, was the lower contribution from energy inflation. By analogy with the analysis above, energy products, added 0.15% last year but only 0.03% this year as petrol and diesel prices rose only modestly in April. This accounted for another 0.1% reduction in the annual CPI rate. This was supplemented by a special factor – air fares. Air fares usually fall by a small amount in April but this year were down 27%, accounting for another 0.16% fall in the annual rate. This reflected the early timing of Easter – it will be recalled that air fares rose by 47% in March so a fall back in April was expected. In, fact, it is surprising that they did not fall by more given that load factors were disappointing in April. It looks as if the carriers got their strategy wrong and we can expect further falls in May.
As far as we were concerned, food prices were the big surprise. The increase in food prices was zero – the last time this happened was in January 2007. True, this followed an exceptionally large rise in March, but it reflected falls in a number of staple items such as bread, biscuits, cakes, pork, poultry and fish. It is too soon yet to say that the big food price rises are over as commodity price increases can take up to a year to filter through. However, there are signs, notably from Germany, that a moderation may be on the way. It is also possible that slower retail sales are prompting greater competition and special offers from the multiples. The slowdown affected both Groceries and Non-Groceries Order items equally.
Our forecast for the average CPI rate in 2008 remains at 4.4%. Next month, we expect to see a modest rebound to 4.4% followed by an even larger rise bringing the rate to 4.7% in June, following which it should tail off to below 4% by year end.
The HICP, which is a better measure of internationally comparable inflation, fell to 3.3% in April, in line with the Eurozone flash estimate for April.