Cheaper food and fuel see inflation drop to 4.3%

CHEAPER FUEL and a third monthly drop in food prices saw the cost of living ease slightly in August as the annual rate of inflation fell to 4.3 per cent, down from 4.4 per cent in July.

According to data from the Central Statistics Office (CSO), increases in mortgage, electricity and clothing costs were more than offset by falls in fuel, rent and food bills.

Economists said food prices have now fallen for three consecutive months as a combination of lower commodity prices and a competitive war among multiples pushing prices down.

Pat McArdle, chief economist at Ulster Bank, said food prices fell by a greater amount last month “than any other August since 1998 and by more than in any other month since October 2005”.

Food prices were 0.4 per cent lower in August than July, although they remain 6.4 per cent higher than a year ago. Prices for eggs, flour, tea, better and meat products all fell last month, while cereals, fruit juice and cooking oils increased.

Fergal O’Brien, economist at business group Ibec, said the second monthly fall in inflation was a long-awaited “silver lining” for the Irish economy.

“In a month which saw electricity prices increase by 17.5 per cent and the impact of the most recent ECB interest rate increase passed on to households, it is a welcome relief for consumers to see that a number of other prices fell,” he said.

While the rate of inflation fell, consumer prices rose 0.5 per cent last month, with the bulk of the increase accounted for by mortgage rates and electricity costs. This monthly increase was the same as in August 2007.

Mortgage interest costs rose 4.7 per cent on the month and to 17.6 per cent in the year.

Clothing and footwear increased by 5.8 per cent as the summer sales ended. Despite this, prices remain over 5 per cent lower than in August 2007.

Restaurant and hotel prices fell for the first August since 1997, dropping 0.2 per cent and 2.1 per cent respectively.

Rents also decreased last month by 2.9 per cent. Over the last 12 months, private rents have increased by just 2 per cent.

With employers, trade unions and Government officials due to start discussing the pay element of a new social partnership deal today, Mr McArdle said the easing of inflation “finally nails union claims that inflation this year would be close to 5 per cent”.

Based on today’s data Mr McArdle said he now expects annual inflation this year to average at 4.4 per cent before falling to 2.5 per cent for 2009.

Using the European measure of consumer price inflation, the HICP, which does not include mortgage costs, Ireland’s annual inflation rate was 3.2 per cent in August, well below the euro zone average of 3.8 per cent.

Mark Fielding, chief executive of Isme, said rising costs continued to affect businesses badly.

“The cost environment, in particular energy, transport, local charges and labour costs, are still having a devastating impact on Irish competitiveness,” he said.