See Search Box
lower down this column for searches of Finfacts news pages. Where there may be
the odd special character missing from an older page, it's a problem that
developed when Interactive Tools upgraded to a new content management system.
Welcome
Finfacts is Ireland's leading business information site and
you are in its business news section.
Irish consumer prices in August, as measured by the CPI,
increased by 0.7% in the month. This compares to an increase of 0.4% recorded in
August of last year. As a result, prices on average, as measured by the CPI,
were 0.2% higher in August compared with August 2009.
The EU Harmonised Index of Consumer Prices (HICP) increased by
0.2% in the month, the same as the increase recorded in August of last year. As
a result, prices on average, as measured by the HICP, were 1.2% lower in August
compared with August 2009.
The Central Statistics Office (CSO) said most notable changes in
the year were increases in Education (+9.5%), Housing, Water,
Electricity, Gas & Other Fuels (+7.9%) and Communications (+2.9%).
There were decreases in Clothing & Footwear (-8.2%), Furnishings,
Household Equipment & Routine Household Maintenance (-4.0%), Food &
Non-Alcoholic Beverages (-3.2%) and Alcoholic Beverages&Tobacco
(-3.2%).
The annual rate of inflation for Services was 2.3% in the year
to August, while Goods decreased by 2.1%.
The most significant monthly price changes were increases in
Clothing & Footwear (+3.7%), Housing, Water, Electricity, Gas & Other
Fuels (+3.5%) and Transport (+0.5%). There was a decrease in Food
& Non-Alcoholic Beverages (-0.3%).
The main factors contributing to the monthly change were as
follows:
Clothing & Footwear
rose due to a recovery in prices following the traditional summer sales.
Housing, Water, Electricity, Gas & Other Fuels increased due to higher
average mortgage interest repayments. Transport rose due to increases in
airfares and car rental charges. Food & Non-Alcoholic Beverages fell due
to lower prices across a wide range of food and non-alcoholic beverage items.
The CSO said the CPI (Consumer price Index) excluding tobacco
index for August increased by 0.8% in the month and was up by 0.2% in the
year. The CPI excluding energy products rose by 0.9% in the month and decreased
by 0.4% in the year. The CPI excluding mortgage interest increased by 0.2% in
the month and was down by 1.0% in the year.
Davy economist Aidan Corcoran commented:
CPI shows a return to inflation,
but mortgage interest costs account for a significant portion of the rise
Rising prices may reflect growing consumer demand
Headline CPI rose 0.7%
month-on-month (mom) in August, the largest monthly increase since May 2008,
while the European standard HICP measure rose 0.2%.
Rising prices may reflect
growing consumer demand, but with some caveats.
Mortgage interest costs rise
significantly
The mortgage interest component
of the CPI rose by 10% mom and 24% in the past 12 months.
Stripping out the mortgage
component, prices rose by a more modest 0.2% monthly. Core inflation, which
excludes food, energy and mortgage interest, gained 0.28%.
Some of this remaining increase
is due to the end of the summer sales, which helps to explain the 3.7%
monthly rise in clothing and footwear prices.
Ireland insulated from world food
price pressure
World food prices have surged in
the wake of severe droughts in Russia and the subsequent ban on wheat
exports, but domestic food prices fell slightly on the month and show a 3.2%
decline over the past 12 months.
World energy prices have fallen
over the past month, allowing Irish energy prices to post a slight decline
of 0.2% mom.
Commenting on the data, IBEC
economist Reetta Suonperä said: “The return to inflation in the autumn was
expected. As measured by the CPI, prices increased by 0.2% year-on-year in
August. This is the first time since December 2008 that prices have increased on
an annual basis.
“Prices are now rising again, but the spare capacity in the economy will ensure
that inflation in coming years will be fairly moderate. Price levels are likely
to remain below the 2008 peak until 2013.
“Although Ireland has made headway in improving its competitiveness, prices in
some sectors remain too high and need to fall back in line with those of our
competitors,” concluded Suonperä.
Dr. Dan McLaughlin of Bank of
Ireland commented:
Consumers prices recorded annual rise last month…Irish consumer
prices, as measured by the CPI, have been on a rising monthly trend since
February, and this implied that the annual inflation rate would turn positive
again in the fourth quarter. In the event this occurred a month earlier than we
expected; August’s 0.7% increase in the index brought the annual inflation rate
to 0.2% from -0.1% in July. As such this represents the first move into positive
territory for the annual inflation rate since December 2007.
…driven by jump in mortgage costs…The surprisingly
large rise in the August index was driven by higher mortgage interest costs, as
banks here seek to pass on some of their higher costs of funding. Interest
payments rose by 10% on the month, so contributing 0.56 percentage points to the
overall rise in the index, and taking the annual change in mortgage costs to
over 24%. Clothing and footwear prices also rose sharply in the month, by 3.7%,
and this was the other main factor behind the index increase on the month,
adding 0.13%. Food prices fell, by 0.3% providing a partial offset, although
higher air fares boosted transport costs. In sum, eight of the twelve component
groups in the CPI have recorded price rises over the past three months, although
half are still recording price falls on an annual basis.
…the currency effect may be trumping the output gap…Past
research on Irish inflation has tended to show that currency moves have a
significant impact on Irish prices, given the small and open nature of the
economy. Consequently, the fall in Irish prices from late 2007 may have had as
much to do with the rise in the euro, particularly against sterling, as the size
of the output gap. Similarly, the fall in the euro against the UK currency over
the past eighteen months (some 15%) has no doubt been a factor behind the price
trend evident since the turn of the year.
…although demand factors still evident in some areas…The
price of services is more likely to be determined by domestic factors, however,
and the change in that regard over the past three years is clearly evident in
some areas. Take childcare, for example, which during the boom experienced
persistent excess demand, prompting a range of political initiatives in an
effort to deal with the problem.
The plunge in employment has had a huge impact however, and in
August childcare costs had fallen an annual 11.2%.
Annual HICP inflation is still negative…The HICP
measure of inflation, the EU standard, does not include mortgage costs and
consequently the monthly rise in that index was only 0.2%, which left the annual
inflation rate unchanged at -1.2%. Prices fell consecutively in the final four
months of 2009 on this index, and we doubt if this will be repeated this year.
Consequently, we also expect annual inflation to have turned positive on this
measure by year end.
