Consumer prices fall 3.2%

The rate of deflation continued to ease in February, with consumer prices falling 3.2 per cent in the year to February, new data from the Central Statistics Office showed today.

This compares to an annual fall of 3.9 per cent recorded in January. The annual rate of deflation peaked in October at 6.6 per cent before falling back to 5.7 per cent in November and 5 per cent in December.

The most significant decreases in the year to February were seen in prices for clothing and footwear, which fell 11.4 per cent, and housing, water, electricity, gas and other fuels, which saw prices decline 10.6 over the year. The cost of food and non-alcoholic beverages were also down, falling 8 per cent.

The cost of education rose 10.6 per cent, while transport also saw an increase in prices, rising 3.9 per cent.

"Prices have fallen in most areas of the economy over the last year," said National Irish Bank's chief economist Dr Ronnie O'Toole.

"The main exceptions have been in the cost of transport because of the rise in oil prices and the impact of the carbon tax, the cost of education due to the increase in the third-level registration fee from €900 to €1,500 at the start of the current academic year, and the 'miscellaneous goods' category because of higher insurance costs."

Meanwhile, overall prices were 0.4 per cent higher compared to January 2010.

On a monthly basis, prices for clothing and footwear rose 6.8 per cent, while furnishings, household equipment and routine household maintenance saw prices increase 1.5 per cent as prices returned to normal levels following the January sales.

A fall in the price of prescribed drugs led to a reduction of 2.1 per cent in health costs, while householders were hit with an increase in mortgage interest repayments that contributed to a 0.7 per cent rise in housing costs. Rising premiums for health insurance fuelled a 1.4 per cent rise in the cost of goods and services.

Fine Gael finance spokesman Richard Bruton called for an end to what he described as the "great Government rip-off".

"Households which are struggling to make ends meet are being ripped off by the very Government which is supposed to be helping them. Not only are businesses being starved of credit, they are also being fleeced by the State.

"Even the Government's key advisers recognise that the Irish State is too expensive for businesses, as well as homeowners."

The party called for action on public sector costs, tackle red-tape for businesses and have an overhaul of the energy generation in Ireland with greater competition."

The Irish Small and Medium Enterprises association (Isme) said it was concerned that the consumer price index was masking rising business costs and undermining competitiveness.

"While overall inflation is negative, the State continues to increase business costs, without consideration of the damage being done to companies. It is absolutely crazy that the Government will not reduce the cost environment to assist the business community to maintain and retain jobs," said Isme chief executive Mark Fielding.

Isme is seeking a benchmarking review of business costs compared to international peers to bring costs into line with Ireland's trading competitors.

Meanwhile, the EU Harmonised Index of Consumer Prices (HICP) showed a rise of 0.2 per cent in the
month, the same as last year. On an annual basis, prices were 2.4 per cent lower in February compared with the same month in 2009.

Ireland is only one of five countries within the 27-member European Union to remain in deflationary territory, along with Slovakia, Estonia, Latvia and Lithuania.

"While Ireland needs to make significant downward wage/price adjustments to make itself more competitive and return the economy to sustainable growth, the last thing we need is to get stuck in a deflationary spiral like Japan, which will do more damage than good in the medium- to long-term," Bloxham economist Alan McQuaid said.

"Thankfully, we don't think that will be an issue. Indeed, the latest Reuters monthly Irish economists' poll sees the CPI returning back to positive year-on-changes by October this year, though it could be sooner than that the way things are going, especially if the banks keep pushing up mortgage interest rates and global oil prices continue to rise.