Annual inflation rate falls to 2.7% in May

THE ANNUAL rate of inflation fell for the first time in seven months in May, reflecting a temporary decline in the contribution from mortgage interest payments.

The slowing of the rate at which the price level is rising was also the result of a flattening in energy prices.

The halting of rapid high energy price inflation was to be seen in lower inflation across the euro zone area more generally.

The annual rate of inflation fell to 2.7 per cent in May, compared to the 30-month high of 3.2 per cent in April.

Despite the easing off of the pace of inflation last month, the cost of living continued to increase in May, though at a much slower rate than in previous months.

The consumer price index rose by 0.1 per cent last month, compared to April.

An increase in the cost of men’s clothes, hotel rates and higher prices for spirits sold in off-licences and supermarkets contributed to the rise. In terms of the annual inflation rate, energy and mortgage interest costs continued to drive inflation, and the prospect of further interest rate increases over the summer signalled by the ECB yesterday may serve to fuel inflation further.

Davy stockbrokers noted yesterday that with oil prices unlikely to increase at the same rate as last year, the headline consumer price index inflation rate could decline through 2011.

Alan McQuaid of Bloxham said inflationary trends this year would ultimately depend on the global economy and the impact the pace of the global recovery would have on commodity prices, and policy decisions such as interest rate hikes.

“Despite the fall in the headline inflation rate in May, the overall average inflation rate for 2011 as a whole is set to be a lot higher than generally envisaged at the start of 2011,” he said, adding an average inflation figure of close to 3 per cent for the year was possible.

Responding to last month’s fall in inflation, the Irish Small Medium Enterprises Association, warned against complacency.

“With inflation still at relatively high levels, the Government needs to put the brake on rising costs, particularly those that directly affect hard-pressed businesses,” chief executive Mark Fielding said, highlighting the need to address domestic costs such as commercial rates, wages, rents and utilities,

Noting that the inflation rate was “a key component in regaining lost competitiveness”, Patricia Callan of the Small Firms Association urged the Coalition to ensure Government-controlled costs were kept under control.

Prices in Ireland have been on an upward trajectory since early 2010.

Prior to that date, in the period from late 2008 an unprecedented decline in prices was recorded. Last month the price level was still 4 per cent below its September 2008 peak.