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News : Irish Economy Last Updated: May 13, 2011 - 8:23 AM

Irish consumer prices up 3.2% in year to April; Deflation not inflation is still a feature of consumer sectors
By Finfacts Team
May 12, 2011 - 2:00 PM

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Source: CSO

Irish consumer prices in April, as measured by the CPI (Consumer Price Index), increased by 0.4% in the month. This compares to an increase of 0.2% recorded in April of last year. Prices on average, as measured by the CPI, were 3.2% higher in April compared with April 2010. However, deflation not inflation is still a feature of consumer sectors.

The Central Statistics Office (CSO) said the EU Harmonised Index of Consumer Prices (HICP), which excludes housing costs, increased by 0.3% in the month, compared with no change recorded in April of last year. Prices on average, as measured by the HICP, were 1.5% higher in April compared with April 2010.

The most notable changes in the year were increases in Housing, Water, Electricity, Gas&Other Fuels (+11.8%), Miscellaneous Goods &Services (+8.6%), Communications (+4.1%) and Health (+4.1%). There were decreases in Clothing & Footwear (-2.0%),  Furnishings, Household Equipment & Routine Household Maintenance (-2.0%) and Education (-1.2%).

The annual rate of inflation for Services was 4.4% in the year to April, while Goods increased by 1.6%.

The most significant monthly price changes were increases in Transport (+1.0%), Miscellaneous Goods & Services (+1.0%) and Housing, Water, Electricity, Gas & Other Fuels (+0.9%). There was a decrease in Food & Non-Alcoholic Beverages (-0.5%).

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

  • Transport rose mainly due to an increase in airfares and higher petrol and diesel prices;

  • Miscellaneous Goods & Services rose due to higher premiums for health, home and motor car insurance;

  • Housing, Water, Electricity, Gas & Other Fuels rose due to higher mortgage interest repayments and an increase in the cost of home heating oil;

  • Food & Non Alcoholic Beverages fell due to lower prices across a wide range of food items.

The CPI excluding tobacco for April increased by 0.4% in the month and was up by 3.2% in the year. The CPI excluding energy products rose by 0.4% in the month and increased by 2.3% in the year. The CPI excluding mortgage interest increased by 0.4% in the month and was up by 1.9% in the year.

Source: Goodbody

Goodbody economist, Juliet Tennant, commented:

Externally-led inflation continues with headline CPI rising to 3.2% yoy

Inflation at a 30-month high - Forces outside Ireland’s domestic control continue to exert an upward influence on the rate of inflation with the CPI increasing by 3.2% yoy in April, the highest rate since October 2008. The more instructive HICP rose to 1.5% in April, continuing to close the gap on euro-zone inflation which stood at 2.8%;

Energy, mortgages and insurance are the major drivers with domestic sectors still dealing with deflation - Energy prices in Ireland rose by 13% yoy in April, contributing c. a third to yoy inflation, while mortgage interest accounted for c.40% of the increase in the CPI;

Insurance rose 16% yoy accounting for a further 20% of the increase. Sectors exposed to the domestic sectors like Restaurants & Hotels (-1% yoy) and Household goods (-2% yoy) are still seeing price declines;

We view the increase in headline inflation as transitory - Given the weak domestic environment, particularly in relation to the labour market where wage inflation is unlikely, we view the increase as transitory. Nevertheless, the rise in headline inflation in the short-term does reduce consumers' discretionary income.

Source: Goodbody

Commenting on the latest CSO consumer price index (CPI), IBEC chief economist Fergal O'Brien said:"We have seen a largely commodity-fuelled increase in the CPI in the early months of this year, but inflation rates are likely to ease during the second half. The main contributors to the rise have been commodity prices and mortgage interest. While there will be further increases in mortgage interest in the coming months as the ECB increases are passed on to householders, other issues are likely to ease the overall inflationary pressures in the economy.

"Government's decision to cut the lower VAT rate by 4.5% on a selected basket of items will feed through to the CPI and about 10% of the index's overall basket of goods and services will benefit from this - this should therefore cut close to 0.5% off the CPI in a full year.

"Core inflation still remains low in Ireland and the increase in the harmonised index, which excludes the mortgage interest component, is likely to average about 1.5% this year. The CPI will increase by about 2.5% this year but we think that the monthly observations will ease back over the coming months and inflation next year is unlikely to exceed 1.5%. The focus over the coming months must remain on reducing costs across the economy and regaining competitiveness,"
concluded O'Brien

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