Rising costs push inflation to six-year high

Inflation has hit a six-year high, with the rising cost of repaying mortgages and higher electricity bills pushing the annual rate to 5.2 per cent last month.

Opposition parties and business groups yesterday attacked the Government for not doing enough to keep inflation under control at a time of the year when inflation usually falls as a result of January sales.

Mortgage interest costs grew 48 per cent in the 12 months to the end of January, according to figures released by the Central Statistics Office (CSO), pushing the annual Consumer Price Index (CPI) rate of inflation to its highest point since June 2001.

But the effect of the ESB's price increases meant that electricity costs were responsible for the highest monthly increase in prices, rising by 12.6 per cent in January.

The Government responded to the figures by saying it had no control over rising European Central Bank interest rates, which contributed to almost half of the increase in prices over 12 months.

The Minister for Finance Brian Cowen pointed to the EU Harmonised Index of Consumer Prices (HICP), which fell from 3 per cent in December to 2.9 per cent in January, and said it was a better measure for comparing inflation with the euro zone.

But the Irish HICP rate is still hovering above an average HICP rate of 1.9 per cent in the euro zone and Mr Cowen admitted that the 9.1 per cent annual rate of inflation in the services sector was "a cause for concern".

Most of Ireland's inflation problems were created at home, Fine Gael finance spokesman Richard Bruton said.

The CSO data conceals huge differences in the impact of inflation on some families, he added.

The "stark reality" for many young families was that the cost of mortgages, education, childcare, health insurance and household fuels absorbed well over 50 per cent of their budgets, whereas the CSO's average weighting for these items was much lower, Mr Bruton said.

Labour Party finance spokeswoman Joan Burton said inflation rates of 5 per cent were "simply not sustainable".

Green Party finance spokesman Dan Boyle said the increase, in "breaching the psychological 5 per cent barrier", meant that controlling inflation should now move beyond being a matter of mild concern to being an issue of prime concern.

The director of the Small Firms Association, Patricia Callan, said the rise in inflation was "damaging".

The annual rate of inflation is now widely expected by economists to have peaked and is predicted to steadily decline during the year.

But January's annual CPI rate, which increased from 4.9 per cent in December, would have been even higher were it not for a bigger than usual impact from the post-Christmas sales, which knocked 0.9 points off the rate.

This reflected the CSO's re-weighting of the basket of consumer goods to boost the proportion spent on clothes rather than higher than average price reductions during the sales, according to Ulster Bank chief economist Pat McArdle.

Food items that were subject to the Groceries Order, the legislation that previously stopped retailers from passing on discounts to consumers, have fallen 0.5 per cent over 12 months, compared with a 5.1 per cent increase in the price of food items that were not subject to the order.

Mr McArdle said without the abolition of the order food prices would have added to inflation.