Inflation slows to 2.2 per cent

Inflation slowed to 2.2 per cent in the year to August, new data showed today, while prices rose 0.2 per cent in the month, according to a report from the Central Statistics Office.

The Consumer Price Index showed prices for housing, water, electricity, gas and other fuels rose by 7.2 per cent over the year, and increased by 0.6 per cent month-on-month as the cost of electricity and mortgage interest repayments grew.

Health costs were 3.4 per cent higher than August last year, and transport was 3.2 per cent higher year on year.

The cost of furnishings, household equipment and routine household maintenance fell by  2.3 per cent over the year, but rose 0.6 per cent in the month as prices recovered following the traditional summer sales.

Education costs were 1.6 per cent lower compared to July.

"Areas that are exposed to discretionary spending remain under price pressure as retailers attempt to attract trade by discounting," said Goodbody economist Juliet Tennent. "Further austerity measures and a weak labour market will continue to weigh on domestic demand in 2011 and 2012 as consumers are likely to remain hesitant to spend."

The cost of services rose by 2.7 per cent in the year to August, while goods were 1.3 per cent higher.

The EU Harmonised Index of Consumer Prices, which excludes items such as mortgage interest, rose by 0.2 per cent in the month and 1 per cent over the year, the lowest in Europe. In August, euro-area inflation stood at 2.5 per cent.

Bloxham chief economist Alan McQuaid said the fall in headline inflation was good news.

"Continued weak consumer demand and one-off factors such as the reduction in VAT for mainly tourism related services should help to push inflation down over the remainder of the year," he said. "In addition, weaker sterling vis-à-vis the euro may also give rise to lower import prices, mainly for food, clothing and footwear."

However, he warned higher energy prices in the second half of the year could drive inflation higher.

The Irish Small & Medium Enterprises Association (Isme) said costs to businesses were still rising and called for action on Government influenced costs.

"As businesses do their best to reduce the costs under their control, they are being completely undermined by high costs imposed from outside the enterprise, in particular commercial rates, rents, transport, labour and energy," said chief executive Mark Fielding.

"From an SME perspective, the never ending round of cost increases, together with the economic uncertainty, is destabilising businesses, impacting on planning and growth prospects."