Falling airfares and hotel prices anchor inflation to 0.7%

Latest consumer price index show inflationary pressure in Irish economy remains weak

Transport prices, including air fares, petrol and diesel, fell 0.6%. Photograph: Nick Ansell/PA Wire

Transport prices, including air fares, petrol and diesel, fell 0.6%. Photograph: Nick Ansell/PA Wire

 

Decreases in the cost of hotel accommodation and airfares saw headline inflation in the Irish economy fall to 0.7 per cent in October. This was marginally down on the 0.9 per cent recorded in September and is in keeping with the subdued level of inflation see elsewhere in the euro zone.

The main monthly changes affecting the latest consumer price index were decreases in the cost of clothing and footwear (-1.7 per cent) and restaurants and hotels (-0.6 per cent) and transport, which includes air fares, petrol and diesel (-0.6 per cent).

On the flipside, there were monthly increases in education (+4.5 per cent) and housing, water, electricity, gas and other fuels (+0.3 per cent).

The increased cost of housing was fuelled by rising rents, which were up 5 per cent year on year, according to the figures.

“Despite strong economic growth, there is as yet little sign of sustained pressure on the prices front, and this is the same story across the euro zone, indicating why the European Central Bank is still very much in easy monetary policy mode,” analyst Alan McQuaid said.

“Oil prices will be critical in determining the headline inflation outlook over the next 12 months or so, but they remain volatile and hard to predict given the uncertainty over Opec supply and geopolitical tensions in the Middle East, and there are also question marks over global demand,” he said.

“Prices in general are also likely to be higher in a post-Brexit environment, though that is still more likely to be an issue for 2021 and beyond rather than a near-term worry,” he said.

Mr McQuaid said the more immediate worry on the domestic inflation front centres around increased wage demands, particularly in the public service.

“As the labour market approaches full employment levels, wage growth will pick up,” he said, noting that in its most recent quarterly economic bulletin, the Central Bank forecast an average increase in compensation per employee of 3.9 per cent in 2019-2020, up from 2.7 per cent in 2018.