Inflation in the Irish economy unexpectedly rose to 8.5 per cent in February, up from an annual increase of 7.8 per cent in January, stoking further concern that price growth may prove stickier than previously anticipated.
According to the Central Statistics Office’s official measure of inflation – the consumer price index (CPI) – prices on average rose by 1.6 per cent between January and February. Before February the CPI had fallen for three consecutive months.
The latest data indicates the cost of most goods and services – from restaurants, hotels and airfares to clothing, footwear and food – rose last month.
The latest hike in Irish inflation comes amid major turbulence on financial markets triggered by the collapse of California’s Silicon Valley Bank (SVB) and fears for European bank Credit Suisse. It also comes as the European Central Bank lifted interest rates by a further 0.5 per cent.
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Since last July Frankfurt has embarked on an aggressive path of monetary tightening which has seen interest rates go from zero to 3.5 per cent. Markets had priced in another 0.5 per cent rate hike in March but the financial turmoil generated by Credit Suisse has cast doubt over that move.
According to the CSO, the most significant increases in the year were seen in housing, water, electricity, gas and other fuels which was up 26 per cent. Within this category, electricity was up 62.7 per cent, while gas was up by a significant 86.1 per cent. Private housing rents, meanwhile, were up by 10.6 per cent on this time last year.
The other big driver of inflation was food, which rose by 13.1 per cent year-on-year. The annual change in this category reflects a rise in prices across a range of products, with sugar, milk, eggs and butter all up by over 20 per cent.
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The CPI is a different measure of price growth to the harmonised index of consumer prices (HICP), which put inflation in the Republic at 8 per cent in February. Both measures are collated by the CSO. The HICP figure feeds into Eurostat estimate of euro zone inflation but the CPI is the official measure here.
This was the 17th straight month where the annual increase in the CPI has been at least 5 per cent, the CSO noted.
The latest estimate of Irish inflation comes amid forecasts from the Minister for Finance Michael McGrath and employers’ group Ibec that inflation will this year fall more rapidly than anticipated, to 4-5 per cent.
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“Inflation in Ireland reversed recent declines in another blow for consumers grappling with the cost-of-living crisis. With inflation remaining stubborn in the United States, the latest data will provoke further jitters about central banks’ ability to deal with inflation, particularly given the recent tremors in the banking market,” said Robert Purdue FX dealer with Ebury Partners. “A further €1.2 billion cost-of-living package unveiled last month provided additional support to households, particularly the most vulnerable, but rising costs across the board continue to squeeze household budgets.”
Marian Ryan from consumer advocacy group Taxback.com said: “Inflation levels remain significantly high and continue to put a huge strain on households as people brace themselves for higher energy bills due to the reduced 9 per cent VAT rate charged on gas and electricity having come to an end at the end of February.
“Households can now expect to pay 13.5 per cent VAT rate on energy bills from this month onwards. The March energy credit of €200 will still go ahead but with Taoiseach Leo Varadkar stating it will be the last of its kind until after the summer households are understandably worried about how they will cope.”
