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Irish Consumer Prices in July, as measured by the CPI, remained
unchanged in the month. This compares to a decrease of 0.8% recorded in July of
last year. As a result, prices on average, as measured by the CPI, were 0.1%
lower in July compared with July 2009.
The Central Statistics office (CSO) reported today that the EU
Harmonised Index of Consumer Prices (HICP) decreased by 0.1% in the month,
compared to a decrease of 0.8% recorded in July of last year. As a result,
prices on average, as measured by the HICP, were 1.2% lower in July compared
with July 2009.
The most notable changes in the year were decreases in
Clothing & Footwear (-8.5%), Food &Non-Alcoholic Beverages (-3.8%)
and Furnishings, Household Equipment &Routine Household Maintenance
(-3.4%). There were increases in Education (+9.2%), Housing, Water,
Electricity, Gas & Other Fuels (+5.5%) and Transport (+2.7%).
The annual rate of inflation for Services was 1.4% in the year
to July, while Goods decreased by 2.0%.
The most significant monthly price changes were decreases in
Clothing & Footwear (-7.1%) and Furnishings, Household Equipment &
Routine Household Maintenance (-0.3%). There were increases in
Communications (+2.8%), Miscellaneous Goods &Services (+0.5%),
Alcoholic Beverages &Tobacco (+0.5%) and Health (+0.5%).
The main factors contributing to the monthly change were as
follows:
Clothing & Footwear
and Furnishings, Household Equipment & Routine Household Maintenance fell
due to sales. Communications rose due to increases in landline and mobile
phone charges.
Miscellaneous Goods
&Services rose mainly due to an increase in the cost of home insurance.
Alcoholic Beverages &Tobacco rose due to higher tobacco prices and increases
in the price of wine sold in off licences and supermarkets.
Health rose due to an
increase in hospital charges.
The CPI excluding tobacco index for
July showed no change in the month and was down by 0.2% in the year. The CPI
excluding energy products showed no change in the month and decreased by 1.1% in
the year. The CPI excluding mortgage interest showed no change in the month and
was down by 1.0% in the year.
Davy analyst, Aidan Corcoran,
commented:
CPI stabilises in July; signs of a
recovery in demand
Easing deflation is mixed news
CPI figures for July show prices
stabilising, helped somewhat by increases in telecommunications costs.
While further price falls would
help Ireland regain competitiveness, at least the slow-down in deflation
suggests that demand is stabilising.
Headline CPI held steady
month-on-month, resulting in a fall of 0.1% in the year to July.
Seven of the 12 categories
posted monthly gains, up from three in June.
Food posted a rise for the third
month running, the first time we have seen this since 2008. We expect the
weakening euro and adverse weather conditions to support food prices in the
coming months.
'Core' CPI (excludes mortgages,
food and energy) fell 1.7% annually, up from 2.4% deflation in the year to
June. This measure gives a good indication of domestic price pressures.
Seasonal sales had a relatively
muted effect, with furnishings and household equipment showing a modest
monthly decline of 0.3%. Likewise, clothing was down only 7.1% on the month,
as against a fall of 11.2% in July 2009.
Slower progress on
competitiveness gap
HICP, the EU standard for
measuring prices, continued to slip lower, posting a fall of 0.1% versus
June, or 1.2% annually.
HICP thus remains on track to
meet our forecast of a 1.9% drop for 2010.
In annual terms, prices continue
to fall versus the EU, but at a slower rate.
Return to modest inflation will
help economic recovery – IBEC
The group also said that while deflation has helped Ireland regain
competitiveness, prices and costs in some sectors of the economy remain high and
need further downward adjustment.
Commenting on the latest CSO inflation figures, IBEC senior economist Fergal
O'Brien said: "The fact that the deflationary period is almost over is no bad
thing. The trend so far this year has been largely as expected, and the return
to modest levels of price growth over the coming months will have positive
implications for the Exchequer and for businesses.
"The deflationary period has improved Ireland's competitiveness - but prices and
costs in some sectors of the economy are still too high and require further
adjustments.
"With so much spare capacity in the Irish economy, price increases over the
coming years are likely to be fairly moderate. On average, prices will be down
about 1% in 2010 and will rise by a little over 1% next year. Crucially,
however, the actual price level in the economy remains well below where it was
prior to the crisis and it is likely to be 2013 before the Irish price level
returns to where it was in summer 2008."
Bank of Ireland's Economic Research unit commented:
Irish Deflation trend is ending
Broad range of price rises of late…Irish consumer prices, as
measured by the CPI, normally fall in July, reflecting seasonal High Street
sales, but emerged unchanged last month. Prices of clothing, footwear and
household equipment did indeed fall, albeit by less than the previous year, but
this was offset by a broad range of price increases across seven of the twelve
component groups.
Indeed, taking the last three months, eight of the twelve
components have recorded price increases.
…reducing the rate of deflation to -0.1%...The flat CPI
reading in July contrasted with an 0.8% fall a year earlier, and as a result the
annual inflation rate moved sharply, from -0.9% in June to -0.1%. The CPI
reading was stronger than we and the market expected, although implies that our
forecast of a return to positive annual inflation by the fourth quarter is well
on track.
The output gap does not seem a big-factor….Most models of
Irish inflation tend to stress the small open nature of the economy, and as a
result inflation is often seen as driven by international prices and the
exchange rate, with little weight given to domestic demand. The latter has been
very weak, although retail sales have grown this year, and the Department of
Finance believes the economy is operating some 7% below capacity, which has
persuaded some forecasters to predict a prolonged period of deflation. Yet, the
recent fall in the euro against sterling may be having a substantial impact as
is the recovery in global food prices.
…food prices are rising again…Irish food prices fell
steadily in the fifteen months to April, but have risen since, with July’s 0.3%
rise bringing the increase over the past three months to 0.8% and the annual
fall in food prices is now 3.8% from 5.4% in June. The price of alcoholic drinks
is also substantially down on an annual basis, but again July saw a rise (0.5%),
driven to a 1.1% increase in wine which may well be currency driven. The month
also saw a 1.5% rise in hospital charges, a substantial increase in air and sea
fares and a 2% rise in hotels. House insurance also rose, as did
telecommunications costs. In sum, the price of services rose by 0.5% in July,
raising the annual inflation rate in that category to 1.4%, while the 0.6% fall
in goods prices was not sufficient to prevent the annual deflation rate in that
category from slowing to -2.0% from -3.1%.
…HICP inflation was -1.2%...The HICP measure of inflation
(the EU standard) is less volatile than its CPI counterpart, largely because it
excludes mortgage interest. The latter was unchanged in July, so the change in
the HICP index was very similar to that of the CPI, albeit falling by 0.1%.
Again, the base effects were significant nonetheless, and as a result the annual
inflation rate in July was -1.2% from -2.0% in June.
