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News : Irish Economy Last Updated: Jan 21, 2011 - 6:23 AM

Irish consumer prices rise by 1.3% in the year to December 2010
By Finfacts Team
Jan 20, 2011 - 12:25 PM

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Source: CSO

Irish consumer prices in December 2010, as measured by the CPI, increased by 0.2% in the month. This compares to a decrease of 0.5% recorded in December of last year. Prices on average, as measured by the CPI, were 1.3% higher in December compared
with December 2009.

This analysis compares the annual average rates of inflation for 2010 with the annual average rates of inflation for 2009.

The annual average rate of inflation in 2010 was -1.0%. This compares to a rate of -4.5% for 2009 and +4.1% for 2008. The largest annual price fall for the year was recorded in January, when prices on average fell 3.9% compared to the previous January.

The EU Harmonised Index of Consumer Prices (HICP) increased by 0.2% in the month, compared to a decrease of 0.5% recorded in December of last year. Prices on average, as measured by the HICP, were 0.2% lower in December compared with December 2009.

The Central Statistics Office (CSO) said today that the most notable changes in the year were increases in Housing, Water, Electricity, Gas &Other Fuels (+9.9%), Transport (+3.7%) and Miscellaneous Goods & Services (+3.4%). There were decreases in Clothing & Footwear (-4.1%), Alcoholic Beverages & Tobacco (-3.0%) and Education (-3.0%).

The annual rate of inflation for Services was 2.1% in the year to December, while Goods increased by 0.5%.

The most significant monthly price changes were increases in Transport (+1.8%), Miscellaneous Goods & Services (+1.2%) and Housing, Water, Electricity, Gas & Other Fuels (+0.6%). There were decreases in Clothing & Footwear (-2.2%) and Alcoholic Beverages & Tobacco (-1.3%).

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

  • Transport rose mainly due to increases in petrol and diesel prices.

  • Miscellaneous Goods & Services rose due to increases in hairdressing prices and higher premiums for private health andmotor car insurance.

  • Housing, Water, Electricity, Gas & Other Fuels rose due to an increase in the cost of home heating oil.

  • Clothing & Footwear fell due to sales.

  • Alcoholic Beverages & Tobacco fell mainly due to lower prices for wine and spirits sold in off licences and supermarkets.

There were decreases in 6 of the 12 main commodity groups during the year. Some of the most notable changes are as follows:

  • Clothing & Footwear prices decreased on average by 9.4% during the year due to more frequent sales.

  • Food &Non-Alcoholic Beverages prices decreased by 4.5% during the year with food prices falling by 4.6% and non-alcoholic beverages prices falling by 3.6%.

  • Housing, Water, Electricity, Gas & Other Fuels costs increased by 1.3% during the year compared to a decrease of 22% in 2009. This was primarily due to increases in average mortgage interest repayments (+6.4%) and a significant increase in the cost of home heating oil (+31.5%).

  • Energy products increased by 9.6% in the year compared to a decrease of 7.9% in 2009 and an increase of 8.8% in 2008.

  • During 2010, the average price of goods fell by 2.2% while the average price of services (which includes mortgage interest) rose by 0.2%. During 2009, the average price of goods fell by 4.3% while the average prices of services declined by 4.6%.

The CPI excluding tobacco index for December increased by 0.3% in the month and was up by 1.4% in the year. The CPI excluding energy products fell by 0.2% in the month and increased by 0.2% in the year. The CPI excluding mortgage interest increased by 0.3% in the month and was up by 0.2% in the year.

Davy Research economist, Conall MacCoille, commented:

Consumer price inflation picks up in December

  • The CSO release for December indicates that CPI inflation rose by 0.2% month-on-month (mom). On an annual basis, CPI inflation was 1.3% in December, its highest rate since November 2008.
  • As in other countries, the pick-up in CPI inflation can largely be attributed to energy and utility prices. Housing, water, electricity and other fuels rose by 9.9% in the year to December.
  • The CSO release also indicates that transport prices rose mainly due to increases in petrol and diesel prices. Energy price rises more than accounted for the entire increase in consumer prices in the year to December.
  • In contrast, the prices of clothing and footwear, alcoholic beverages, tobacco, restaurants and hotels all made significant negative contributions to the annual inflation rate.

EU HICP measure indicates that Ireland is still in deflation

  • The annual rate of HICP inflation in December was -0.2%. So inflationary pressures appear more muted when the impact of mortgage costs is excluded in the EU harmonised measure.
  • The HICP index rose by 0.2% mom in December.

Goodbody Stockbrokers' chief economist, Dermot O'Leary, commented:

The global trend of higher inflation is also happening in Ireland, but we think it is premature to call the deflationary period for the Irish economy to restore competitiveness over.

Inflation making a comeback... - After two years of deflation, inflation seems to be returning to Ireland. Headline CPI rose by 1.3% yoy in December, the biggest annual increase since November 2008. Our preferred indicator of inflation - the HICP - is also on the verge of registering annual price increases for the first time in two years; in December, the HICP fell 0.2% yoy, relative to -0.8% yoy in November. This compares to 2.2% in the euro-area.

...largely due to external factors - Similar to the inflation spike of 2008, the increase is being led by forces which are largely outside the control of domestic policy. Firstly, energy prices are having a major impact, with the price of energy products increasing by 14% yoy in December. This has been a feature globally over recent months. Secondly, increasing mortgage interest costs are having an impact on the CPI (but not the HICP).

Food prices to increase further - While food prices fell significantly over the 2009/2010 period, there are now signs that this is beginning to be reversed, albeit slowly. In December, the price of food and non-aloholic beverages grew by 0.1% yoy, its highest inflation rate since February 2009. With UK food inflation running at 6% currently and such a large presence of UK multiples based here, this upward trend is likely to continue in the coming months.

Price falls continue in the leisure sector – Deflation is still very much evident in sectors that are exposed weak consumer demand. The price of recreation and culture activities fell by 1.9% yoy in December and restaurants and hotels saw deflation of 2.2% in December. These industries continue to attempt to spur demand through discounting.

Too early to call deflation over - The rise in energy and food prices internationally may prove to just have a transitory effect on inflation, but this, of course, is beyond Ireland’s control. Outside of these, global inflation pressures are low. Therefore, we think it would be premature to call the deflationary period to regain competiveness in the economy over, whether it be reflected in domestic wages or the general level of consumer prices.

Source: Goodbody

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