Inflation remains at flat 2.7% despite a mix of price trends

Fri, Aug 12, 2011, 01:00

THE COST of living steadied last month, with consumer prices flat in July when compared to June, according to fresh data from the Central Statistics Office (CSO).

The latest figures show that consumers continue to deal with a mixture of price trends however, with higher costs in areas such as mortgages and fuel offsetting lower prices recorded in more competitive domestic sectors such as clothing and household equipment.

The European Harmonised Index of Consumer Prices, which excludes mortgage interest charges and is preferred by many economists, fell by 0.2 per cent between June and July and rose by 1 per cent on an annual basis.

Economists at Goodbody Stockbrokers pointed out that on this basis, the Republic continued to have the lowest inflation rate among all 27 members of the EU.

The CSO said prices, as measured by the consumer price index, were on average 2.7 per cent higher than those recorded in July of 2010, when the monthly trend was also flat. An annual inflation rate of 2.7 per cent was also recorded in May and June this year.

Some limited evidence emerged in the numbers of businesses passing on July’s VAT reduction, with prices in restaurants and hotels declining by 0.7 per cent on an annual basis. Hairdressing prices were down by 2.2 per cent between June and July.

Ibec chief economist Fergal O’Brien said it would take a few more months for the consumer price index to fully reflect the VAT reduction of 4.5 percentage points.

Mr O’Brien also said consumers and businesses would be able to draw comfort from further falls in inflation over the coming year.

“The overall outlook for inflation is now much more benign and price rises are likely to be limited over the coming year or so. The CPI increase is likely to average about 2.5 per cent this year and no more than 1.5 per cent in 2012.”

Among the most significant monthly price changes were increases in housing and fuels, which were up 0.9 per cent in the month, largely due to higher mortgage rates. The CSO said mortgage interest costs advanced by 2.3 per cent between June and July.

Food also climbed, again due to international trends, with coffee and some meats particular offenders.

On the positive side, clothing prices again provided a bright spot for consumers, with garments down by 4 per cent and shoes falling by 3.6 per cent, helped by traditional summer sales. Household equipment and furnishings, such as textiles and floor coverings declined for the same reason.

On an annual basis, the most notable price changes were recorded in housing and utilities, which were up 10.3 per cent, and in miscellaneous goods and services, up 7.2 per cent.

There was also a 3.5 per cent jump in transport costs over the year and a 3.4 per cent rise in health costs. Food and non-alcoholic beverages costs rose by 1.1 per cent. There was a 2.9 per cent annual fall in the cost of furnishings, household equipment and household maintenance prices and a 1.3 per cent decline in education costs.