Deflation eased to 5.7% in November

THE PRICE of food and alcohol fell in November, but the cost of education and transport increased, according to the latest Consumer Price Index (CPI) by the Central Statistics Office (CSO).

Overall, the price of the basket of goods and services measured in the CPI remained unchanged in November.

This meant the rate of deflation in the Irish economy eased to 5.7 per cent last month, compared to a deflation rate of 6.6 per cent in October.

Economists now believe the annual rate at which consumer prices are falling is past its steepest point.

“We have now definitely passed the most extreme point of deflation in this cycle,” said Ulster Bank economist Lynsey Clemenger.

However, downward pressure on prices will still be evident in the months ahead, she added.

Food prices fell by a further 0.8 per cent and alcohol prices by 1 per cent in November, as supermarkets attempted to stem the tide of cross-Border shoppers.

The November price cuts mean the price of food and non-alcoholic beverages is now down 7.6 per cent compared to November 2008, while alcohol prices are down 0.7 per cent year-on-year.

Further falls in the price of alcohol should now kick in from January as a result of the reduction in excise duty on alcohol in Wednesday’s Budget.

The reduction in the top rate of VAT from 21.5 per cent to 21 per cent may also result in lower prices from the new year.

Marks Spencer said it would begin using the new 21 per cent rate of VAT in its Irish stores from today, ahead of the January implementation date.

However, the introduction of a carbon tax will result in higher fuel prices next year. This could be exacerbated by upward movements in the price of crude oil on global commodity markets, although yesterday sluggish worldwide demand for oil meant prices fell back to a two-month low.

Consumers continue to pay more for fuel at the petrol pumps, according to yesterday’s CSO figures.

Petrol prices rose 3.1 per cent in November and are up 6.5 per cent year-on-year. Diesel prices rose 3.4 per cent last month, but are down 3.7 per cent over the past 12 months.

Education prices rose 1 per cent last month and have increased 11.3 per cent over the past year, largely due to rises in the cost of third-level education. Transport prices rose 0.8 per cent in November, but are down 0.1 per cent year-on-year.

Deirdre Ryan, economist at Goodbody Stockbrokers, said the fall in the cost of living made wage cuts “somewhat more palatable”. Overall, the decline in prices is set to average at 4.4 per cent this year, while a more moderate decline of about 1 per cent is likely in 2010, Ms Ryan said.

The rate of deflation eased last month because falls in the cost of mortgage interest in October 2008 were eliminated from the 12-month period under comparison.