Inflation unchanged at 6.2% amid fears recent price rises have not fed through

Inflation remained unchanged at 6.2 per cent in September, but rises in interest rates and the price of oil have yet to feed through to the index.

Prices of most goods rose, but in many cases by less than in September last year, the latest figures from the Central Statistics Office revealed. Fuel prices rose by less than many economists had predicted, as did the cost of housing. The Minister for Finance, Mr McCreevy, warned that inflation may pick up again in October given the continuing weak currency and the crisis in the Middle East.

However, according to Dr Dan McLaughlin, chief economist at ABN Amro, inflation has probably peaked. Excluding mortgage costs, he felt it certainly had. He added that large-scale rises in drink, tobacco and energy prices were now unlikely.

The Central Statistics Office used prices from Tuesday, September 12th, to collate the index and many economists fear the figure has not captured the full extent of price rises in September. Oil prices continued to rise throughout the month and there has also been a rise in interest rates since September 12th, which will impact on mortgage interest rates.

Mr Austin Hughes, of Irish Intercontinental Bank, now believes that inflation may not rise above 7 per cent as he had feared. He said yesterday that inflation would peak at 6.75 per cent.

The fact that the inflation rate for September remained unchanged at 6.2 per cent showed that the measures adopted by the Government were having no impact, according to the Fine Gael finance spokesman, Mr Michael Noonan.

"An annual inflation rate of 6.2 per cent cancels out the annual 5.5 per cent increase in wages under the PPF [Programme for Prosperity and Fairness] and more than destroys the benefit to recipients of their 5 per cent, on average, increase in social welfare payments. Persons on fixed incomes will be significantly worse off and savings are being rapidly eroded," he said.

Labour's finance spokesman, Mr Derek McDowell, also warned that inflation has yet to peak. "While the inflation figure has stabilised over the past three months, a rate of 6.2 per cent is simply too high, and all the signs are that it will increase even further next month," he said.

He predicted that the Consumer Price Index would reach 7 per cent by November.

Mr McDowell said the high inflation rate was particularly affecting those on low and fixed incomes. So far, the Government had turned a blind eye to their plight, he added.

Critically, the service component showed a sharp drop from 6.9 per cent to 5.2 per cent. To a large extent, this reflects the inflation generated in the domestic economy rather than by the weak euro or high oil prices. The absence of a price rise from the VHI and other services helped hold back the overall rate. Overall services costs rose by 0.1 per cent, compared with 1.7 per cent in the same month last year. Prices for entertainment, medicines, hairdressing and package holidays all rose slightly. However, telephone and accommodation costs both fell.

According to Mr Hughes, price rises are simply being deferred until next year. From the authorities' point of view, avoiding inflation of 7 per cent or more in the run-up to the Budget is probably worth that risk.