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News : Irish Economy Last Updated: Feb 20, 2014 - 2:03 PM

Irish Economy 2014: Consumer prices fell in January; Wholesale prices slightly rose
By Finfacts Team
Feb 20, 2014 - 2:01 PM

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Irish Economy 2014: Prices on average, as measured by the CPI (consumer price index), were 0.2% higher in January 2014, compared with January 2013 while there was a fall in the month, according to the CSO. Meanwhile wholesale (factory gate) prices rose slightly in the month.

The most notable changes in the year were increases in Education (+4.6%), Alcoholic Beverages & Tobacco (+4.3%) and Miscellaneous Goods & Services (+2.8%). There were decreases in Furnishings, Household Equipment & Routine Household Maintenance (-3.3%), Communications (-2.4%), Clothing & Footwear (-2.3%) and Transport (-2.1%).

Consumer Prices in January, as measured by the CPI, decreased by 0.5% in the month. This compares to a decrease of 0.5% recorded in January of last year. The most significant monthly price changes were decreases in Clothing & Footwear (-9.5%) and Furnishings, Household Equipment & Routine Household Maintenance (-2.7%).  There were increases in Alcoholic Beverages & Tobacco (+3.9%) and Miscellaneous Goods & Services (+1.2%)

CPI report

Monthly factory gate prices increased by 0.4% in January 2014. This compares to a decrease of 0.3% for January of last year. As a result, the annual percentage change showed a decrease of 1.5% in January 2014, compared with a decrease of 2.2% in the year to December 2013. 

In the month, the price index for export sales increased by 0.4%, while the index for home sales remained unchanged.  In the year there was a decrease of 2.1% in the price index for export sales (this can be influenced by currency fluctuations) and an increase of 1.8% in respect of the price index for home sales.

Irish manufacturing is dominated by US firms and wholesale price changes are mainly influenced by changes in the euro/dollar rate.

In the month, the most significant changes were increases in Meat and meat products (+1.4%), Computer, electronic and optical products (+0.5%) and Basic pharmaceutical products and pharmaceutical preparations (+0.2%), while there were decreases in Fish and fish products (-4.2%), Dairy products  (-0.3%) and Other food products including bread and confectionery (-0.2%).

David McNamara, economist at Davy, commented - - "Sceptre of deflation not as worrying as it first looks: Annual inflation remained at subdued levels in January. Prices, as measured by the CPI, fell 0.5% over the month – leaving annual inflation unchanged on December at 0.2%. The HICP measure fell to 0.3% year-on-year (yoy) from 0.4% over the month. As had been the case for much of 2013, two factors in particular have pushed down on the CPI over the past year – oil prices and interest rates.

In the year to January, mortgage interest costs were down 10.4% while energy costs had fallen by 1.2%. Together, these account for 17% of the index so downward movements in both have sufficed to push down on the overall index. In contrast, domestically-driven services price inflation (excluding mortgage interest) was running at a punchier 3% annual rate, unchanged since November. The price rises in services better reflect the recovery in the wider economy in the second half of 2013.

The sectors contributing most to inflation over the year were Alcohol and Tobacco (+4.3%), Education (+4.6%), Restaurants and Hotels (+1.9%) and miscellaneous items (+2.8%). The rises in alcohol prices reflect higher excise duties in Budget 2014, while increasing education costs can be attributed to higher third level tuition fees. Rises in the miscellaneous category largely reflect higher insurance costs (+4.4% yoy). The rise in the restaurants and hotels sector over the year is an encouraging sign of businesses in that sector regaining pricing power as domestic demand picked up over the course of the year.

For some households, hefty price rises in the above categories will be more than enough to offset the benefits from lower energy and mortgage costs. Taken together with further, albeit smaller, hits from Budget 2014, this should keep a lid on disposable income growth in the short term. However, the benign outlook for oil prices and interest rates means a bout of deflation this year is not out of the question and, along with a pick-up in wage growth in an ever-improving labour market, could yield real wage growth this year for the first time since the crisis began."

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