Despite record economic growth, Ireland now has the lowest inflation rate in Europe, according to figures published yesterday. Analysts reacted with amazement to the data, which showed that Irish inflation has fallen to 1 per cent, its lowest since May 1993, at a time of record growth.
"It is the golden age of Irish growth," Mr Eunan King, economist at NCB said.
The data showed that neither strong economic growth nor the pound's fall against sterling is feeding through to price rises.
The annual figures were significantly below analysts' expectations for price rises of between 1.4 per cent and 1.7 per cent. Indeed prices actually fell by 0.2 per cent since July and have not risen at all since May.
On an EU-harmonised basis, prices rose by only 0.6 per cent, lower than any other EU country. According to July data the lowest inflation rate was in Austria at 1.0 per cent on the EU basis.
The abolition of water charges contributed to a 0.2 per cent drop in the index in August. However by far the most surprising figure is a 10 per cent fall in the price of clothing and footwear since August 1996.
Mr Stephen MacFeely, statistician at the CSO, said the annual change is "staggering".
"We were surprised that price fell again. But even in February we had expected prices to pick up far more substantially after the sales."
He added that the price falls can be seen across all department stores, shops and supermarkets right across the State. One reason could be that all the stores are finding cheaper sources. Mr King pointed out that the recent devaluation in Far Eastern countries will only have boosted this gain. "We can expect continued downward pressure on the prices of these goods," he said. "The other point is that after recent events there will be significant downward pressure on the price of electrical goods worldwide."
Food prices also fell in August, as Irish produce came on to the shelves. Potatoes contributed a fall of 0.11 per cent on their own. Mr MacFeely noted that beef and lamb as well as fresh fruit and vegetables fell very significantly. "There was a 12 per cent decrease, which is hard to pin down," he said.
Inflation is likely to pick up sightly in September. An increase in VHI premiums of 9 per cent and the 2p rise in petrol prices are likely to add 0.2 per cent to the index. However, yesterday most analysts were busy revising their estimates for the year down once again.
Dr Dan McLaughlin, chief economist at Riada Stockbrokers, said the figure has removed any remaining doubts about Ireland qualifying for monetary union.
"It has also taken the heat out of any pressure for an interest rate rise," he said. "Although the paradox is that with credit growth rising by over 20 per cent and house prices up 25 per cent in Dublin there must be risks" that inflation would pick up.
He added that the other knock-on effect is that much of the argument for a revaluation of the pound's central rate in the ERM has now disappeared.
