Irish inflation falls back to 0.2% on weaker transport costs

Irish inflation has fallen back to an anaemic 0.2 per cent, snapping five months of accelerating price growth.

The latest consumer price index for May shows the average basket of goods and services was 0.2 per cent higher than 12 months ago, down from nearly 1 per cent in April.

This comes on foot of decreases in the cost of petrol, diesel, air fares and motor insurance.

Against that, there were increases in the price of medical insurance, hotel accommodation and food consumed in restaurants and cafes.

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The figures reflect a slowdown in euro area inflation as a whole, which slipped to 1.4 per cent in May, having been nearly 2 per cent in April.

“Despite strong Irish economic growth, there is little sign of sustained pressure on the prices front, which appears to be the same story across the euro zone, suggesting that the European Central Bank will be in no hurry to tighten monetary policy,” Merrion analyst Alan McQuaid said.

“Inflationary pressures in Ireland as measured by the headline consumer price index should in our view remain fairly well contained in the immediate future,” he said, while noting that the cost of services such as insurance and education was likely to remain elevated.

Wage demands

Mr McQuaid said the more immediate worry was likely to come with increased wage demands.

“Indeed, we have already seen this with public-sector workers. And extra pay for public servants will mean less money being spent on vital services,” he said.

Mr McQuaid’s comments come amid reports of a draft public-sector pay deal which would see about 250,000 State employees receive pay improvements of between 6.2 per cent and 7.4 per cent as part of a new three-year extension of the existing Lansdowne Road agreement.

“The last thing the economy needs now against the uncertain Brexit backdrop is to become uncompetitive again through higher wage costs,” Mr McQuaid said.

Despite the slowdown in price growth, the Irish Small and Medium Enterprises Association said the Government must do more to reduce the high cost of doing business.

Chief executive Neil McDonnell said: “High business costs continue to impact SME profitability and employment.

“Last week’s report by the National Competitiveness Council showed how pressure on property costs here could have adverse consequences for the entire economy, in terms of cost of living and wage demands.”