Annual inflation rate at 2.1%

Consumer prices rose by 2.1 per cent in the year to February, according to new data published by the Central Statistics Office today.

The increase was fuelled by rises in the cost of education, which gained 9.4 per cent compared with a year earlier, and housing and utilities, which rose 5.8 per cent.

Other notable increases in the year were transport costs, which rose by 4.8 per cent – mainly as a result of rising fuel prices, and miscellaneous goods, which were 3.2 per cent higher. This latter category includes items such as health insurance premiums which have risen sharply over the last year.

These increases were partially offset by a fall in the price of furnishings and household equipment, which was down 2 per cent, and a 0.9 per cent fall in the cost of recreational activities. The latter category includes everythign from sports participation, the cost of which was 5 per cent lower, the price of gardens, plants and flowers, which rose by 3.5 per cent, and books.

Bloxham chief economist Alan McQuaid said the figures were worse than expected, although inflation has eased slightly from January, when the annual rate was at 2.2 per cent.

“Taking everything into account, and despite the higher than expected headline inflation rate in February, we still feel that inflation will be lower on average this year than in 2011,” he said.

“Clearly a lot depends on how severe the global downturn is and how quickly the world economy recovers, but currently we believe Ireland’s headline inflation rate may average little more than 1.5 per cent in 2012.”

On a monthly basis prices in February were 0.9 per cent higher than January as the end of traditional winter sales meant a rise in the cost of clothing and footwear, which gained 8.2 per cent.

Transport costs were pushed 2.7 per cent higher as airfares rose and the price of petrol and diesel continued to rise.

Housing and utilities prices declined marginally, by 0.4 per cent as mortgage interest rates eased while alcohol and tobacco fell by a similar amount.This sector includes the cost of water, electricity, gas and other fuels, in addition to mortgage interest, rent and the cost of maintaining properties.

“We expect that the increase in VAT and energy prices will be offset by weak domestic demand as retailers exposed to the discretionary spending of the Irish consumer will continue to have very little pricing power.

“However, a prolonged increase in energy prices poses an upside risk to headline inflation,” Goodbody said.

In the services sector, the annual rate of inflation was 3 per cent, with goods rising by 1 per cent.

The harmonised index (HICP), which excludes items such as mortgage interest, rise by 1.1 per cent on the month and 1.6 per cent year on year.

Although inflation figures were subdued, business groups warned of potential consequences should the Government fail to take action on high State controlled costs.

Isme chief executive Mark Fielding said the contraction in consumer disposable incomes would help disguise the "upward impetus from indirect taxes and increased charges for government services which continue unabated”.