Irish Economy
Irish consumer prices rise by 2.6% in the year to September; Services inflation was 3.6%
By Finfacts Team
Oct 13, 2011 - 1:19 PM

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Source: CSO

Irish consumer prices in September, as measured by the CPI (consumer price index), increased by 0.3% in the month. This compares to a decrease of 0.1% recorded in September of last year. As a result, the annual rate of inflation increased to 2.6%, up from 2.2% in August 2011.

The EU Harmonised Index of Consumer Prices (HICP) increased by 0.1% in the month, compared to a decrease of 0.2% recorded in September of last year. The annual rate of inflation, as measured by the HICP, was 1.3% higher in September compared with September 2010.

The Central Statistics Office said that the most notable changes in the year were increases in Housing, Water, Electricity, Gas &Other Fuels (+8.9%), Miscellaneous Goods &Services (+6.5%), Transport (+4.2%) and Health (+3.4%). There were decreases in Furnishings,
Household Equipment & Routine Household Maintenance (-2.3%) and Education (-1.6%).

The annual rate of inflation for services was 3.6% in the year to September, while goods increased by 1.3%.

The most significant monthly price changes were increases in Clothing & Footwear (+5.4%) and Housing, Water, Electricity, Gas&Other Fuels (+1.7%). There was a decrease in Transport (-0.7%).

The main factors contributing to the monthly change were as follows:

  • Clothing & Footwear increased due to a further recovery in prices following the traditional summer sales;
  • Housing, Water, Electricity, Gas & Other Fuels rose mainly due to higher mortgage interest repayments;
  • Transport fell mainly due to a decrease in airfares.

The CPI excluding tobacco for September increased by 0.3% in the month and was up by 2.6% in the year. The CPI excluding energy products was up by 0.3% in the month and increased by 1.6% in the year. The CPI excluding mortgage interest increased by 0.1% in the month and rose by 1.6% in the year.

Bank of Ireland's Dr. Dan McLaughlin commented:

Annual inflation rises to 2.6%...Irish consumer prices, as measured by the CPI, rose by 0.3% in September, largely due to higher mortgage costs, which accounted for two-thirds of the increase in the index. Clothing and footwear prices also rose but food prices fell marginally and transport costs also declined largely due to steep falls in air and sea fares. Energy prices rose however, reflecting higher electricity and gas costs, with home heating oil also recording an increase. Prices had fallen marginally in September 2010 primarily due to lower energy prices, so the annual rate of inflation picked up to 2.6% from 2.2% in August.

…but mortgage impact unlikely to persist…The monthly increase in mortgage payments in September brought the annual increase to 17.2%. This is a slower rate of increase than seen earlier in the year but still represents a 1.1% addition to the overall inflation rate. The mortgage impact is likely to decrease and to become a factor pushing the annual inflation back down in the months ahead, however, as at worst ECB rates are likely to remain on hold for some time and at best rates may fall by up to 50bp. In addition, oil prices have fallen of late and although the decline in the euro has largely offset the potential impact on Irish energy costs it does mean that energy inflation is unlikely to accelerate in the coming months.

Source: Bank of Ireland

…inflation picture brightens for 2012…Consequently we expect inflation to slow next year, and to average well under 2%, although it may persist at current or marginally higher levels for a few more months. The pick up in inflation over the past year has been the main factor behind the fall in the volume of consumer spending, in our view, as average wages have fallen so resulting in a substantial squeeze in real household incomes. On that basis a deceleration in inflation would have a positive impact in personal consumption next year, particularly if accompanied by a modest rise in average earnings.

…HICP inflation rises to 1.3%...Inflation as measured by the HICP, the standard across the EU, also rose to 1.3% from 1.1%, again reflecting base effects as prices rose by only 0.1% in September. This index excludes mortgage costs and has been much less volatile than the CPI, moving in a 1-1.5% range for the past seven months. The Irish reading in September compares with a 3% estimate for the euro area as a whole highlighting the lack of domestic price pressures in the Irish economy relative to its European peers, and the implied gains in Irish competitiveness.

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