Annual inflation remains steady at 0.2 per cent

Consumer prices rose by 0.2 per cent in the year to January, according to new figures from the Central Statistics Office.

The rise was attributed to a 4.6 per cent rise in education costs, a 4.3 per cent increase in the cost of alcohol and tobacco over the year, and a 2.8 per cent jump in prices for miscellaneous goods and services.

This was partly offset by a 3.3 per cent fall in the cost of furnishings and household equipment and a 2.4 per cent drop in the cost of communications. There were also reductions in the cost of transport and clothing and footwear over the 12 months under review.

“The story remains the same as it was in 2013, with externally-driven oil prices and interest rates keeping a lid on inflation. In contrast, domestically-driven services inflation is now running at a much punchier 3 per cent, better reflecting the recovery in the domestic economy through the second half of 2013,” said David McNamara, an economist with Davy.

“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,” he added.

On a monthly basis, consumer prices fell by 0.5 per cent, led by a 9.5 per cent drop in clothing and foot wear costs and a 2.7 per cent fall in furnishing and household expenses.

Over the month there was a 3.9 per cent rise in alcohol and tobacco prices and a 1.2 per cent increase in miscellaneous good and services.

Prices measured by the Harmonised Index of Consumer Prices (HICP), which does not include items such as mortgage interest, increased by 0.3 per cent compared with January 2013.

Alan McQuaid, an economist with Merrion Stockbroers, said that at this point in time it looks like deflation rather than inflation might be the bigger threat to the local economy.

“Domestic inflationary pressures in Ireland are likely to remain depressed for some time to come. Subdued consumer demand will in general continue to put downward pressure on prices in the months ahead. The residential property tax has hit disposable incomes hard, which in turn is weighing negatively on spending power. And it should be remembered that the full-year effect of the property tax will be felt in 2014,” he said.

“Although the global economy is likely to be stronger this year than in 2013, which may eventually lead to higher oil and energy prices, inflationary pressures in general are set to remain well contained, and we see Ireland’s headline inflation rate being below 1 per cent again in 2014. Following an average rate of just 0.5 per cent in 2013, we are at this point in time forecasting a similar figure for this year.”

Isme warned that low levels of inflation are concealing the cripplin burden of business, which is making it difficult for firms to price their products competitively.