Inflation eases to 3.4% in February but underlying price growth remains strong

Inflation in the Irish economy fell to 3.4 per cent in February, down from an annual rate of 4.1 per cent in January, marginally easing the pressure on households.

Core inflation, which excludes volatile energy and food prices, remained elevated at 4.6 per cent, however. Prices on a monthly basis also rose by 1 per cent in February having fallen by 1.3 per cent the previous month.

The European Central Bank (ECB) says it will not begin to bring interest rates down until it sees a sustained downturn in core inflation, which is being driven by price growth in the services sector.

There is concern among policymakers that elevated levels of pay growth as workers seek a restoration in real income may keep inflation above the ECB’s 2 per cent target rate for longer than expected.

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The latest Consumer Price Index (CPI), collated by the Central Statistics Office (CSO), indicated that headline inflation has now fallen for three consecutive months, reflecting a general easing of pricing pressures across the Irish economy on the back of falling energy prices internationally.

The sectors with the largest monthly declines were alcoholic beverages and tobacco (-0.7 per cent) and communications (-0.3 per cent). They were the only divisions to show a decline when compared with January.

[ Sticky services inflation emboldens ECB to resist calls for rate cuts ]

The sectors with the biggest price increases were clothing and footwear (+3.4 per cent) and transport (+3 per cent). The CSO said the increase in clothing and footwear “was due to a recovery from sales”.

On an annual basis, electricity and gas prices, the main drivers of the initial price shock, were down 16.4 per cent and 12.9 per cent respectively, the CSO said.

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Mortgage interest prices were, however, up almost 28 per cent year-on-year, reflecting the impact of ECB interest rate changes.

Nonetheless the agency noted this was only the fourth time since September 2021 that the annual rate of inflation was lower than 5 per cent.

The CSO’s latest flash estimate from the harmonised index of consumer prices (HICP) put inflation in the Irish economy at 2.2 per cent in February.

The HICP is an index of consumer prices that has been harmonised to allow comparisons across euro zone countries.

It has fallen quicker primarily due to the fact that the consumer price index includes mortgage interest repayments, which have been rising on the back of higher interest rates, while the HICP does not.

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