Cheaper transport costs drive consumer prices lower again

Consumer prices have fallen for a second consecutive month on the back of cheaper transport costs.

Figures from the Central Statistics Office (CSO) show prices fell by 0.2 per cent in August, following a 0.3 per cent fall in July.

This gave rise to an annual rate of deflation of 0.1 per cent.

Ireland’s annual inflation rate had hit 0.5 per cent in July - its highest level in three years - but falling fuel costs and lower car prices have now pushed it back into negative territory.

The most notable changes in the year were decreases in transport (-4.6 per cent), household furnishings (-3.8 per cent), and communications (-3.4 per cent).

Conversely, there were increases in miscellaneous goods and services (+5.1 per cent), education (+3.8 per cent), restaurants and hotels (+2.5 per cent).

A breakdown of the figures show motor car insurance costs were up 28.2 per cent in the year to August, albeit this was down from an annual rise of 38 per cent recorded in July.

Several forecasters have suggested Brexit and the subsequent weakness in sterling may impact the CSO’s Consumer Price Index (CPI) with a stronger euro driving British imports lower in price terms.

However, it may take some time before businesses change their pricing structures amid the current volatility.

“Despite the booming Irish economy, inflationary pressures as measured by the headline CPI are in our view likely to remain fairly well contained in the immediate future,” Merrion analyst Alan McQuaid said.

“That said, the cost of services like insurance and education look set to continue to rise, and sharply,” he said.

Mr McQuaid said oil prices would be critical in determining the headline inflation outlook over the next 12 months.

“There are signs that prices may have stabilised, with a barrel of Brent crude currently trading just below $49. Higher oil prices, if sustained, would push the CPI up as the year goes on and into 2017, but they remain volatile and that is by no means guaranteed,” he said.

Mr McQuaid said Irish inflation may also be driven by wages with the recent revisions to economic growth likely to put pressure on policymakers.

The Irish Small and Medium Enterprises Association (Isme) warned that continuing increases in business costs were stalling our recovery and called for a more focused approach from Government.

,“Unjustified increases in business costs are stifling growth in the Irish economy. Excessive rises in motor insurance, legal fees and bank charges are causing a rethink on business growth plans which has a negative effect on job creation,” Isme boss Mark Fielding said.

He said increases of 35 per cent and over were now common in general insurance while motor insurance premiums are in some cases double that.

“The Government has allowed the insurance industry to charge what they like, in a broken market where investigation and intervention is necessary,” he said.