Latest rise in interest rates drives up inflation

The Government's record on inflation came in for strong and widespread criticism yesterday as consumer prices rose sharply.

Figures released yesterday by the Central Statistics Office (CSO) show that inflation accelerated sharply in November, reflecting the impact of October's interest rate increase.

But analysts and Opposition spokespeople said that the Government's management of the economy was also keeping Ireland's inflation rate significantly above the EU average.

The rate of annual inflation rose to 4.4 per cent in November from 3.9 per cent in October. As measured by the harmonised index of consumer prices (HICP) - which excludes the impact of mortgage rate increases - inflation rose to 2.4 per cent, up from 2.2 per cent in October. EU average HICP inflation in October - the latest month for which this figure is available - was 1.6 per cent.

The European Central Bank's (ECB) quarter-point rate rise last October drove the latest increase in the annual rate. Prices in the category combining housing, water and energy costs were 21.7 per cent higher last month than in November 2005 and 2.8 per cent higher than in October.

Inflation in the services sector remained significantly above average, with the price of health services rising 4.3 per cent year-on-year and the price of educational services increasing by 4.9 per cent.

For the services category as a whole, prices last month were 8.5 per cent higher than a year ago. By contrast, prices fell in the goods sector by 0.3 per cent.

Describing the figures as "disappointing", Bloxham's chief economist Alan McQuaid said the recent Budget would aggravate inflation in the short-term. "Although it is hard to argue against it on health grounds, the 50 cent rise in excise duty on tobacco products announced in last week's Budget couldn't have come at a worse time as regards the inflation outlook," he said yesterday.

Mr McQuaid predicted that inflation would average 3.9 per cent for this year as a whole and remain at that level next year.

Davy economist Rossa White said that core inflation - inflation excluding interest rates and food prices - remained under control, but predicted that inflation would reach 3.5 per cent next year. By contrast, last week's Budget forecasts show the Government expects inflation to average 2.6 per cent during 2007.

Isme chief executive Mark Fielding accused Minister for Finance Brian Cowen of not doing enough to contain inflation. "The decision to increase current expenditure by 11.5 per cent without any corresponding demands for increased efficiencies in the public sector will come back to haunt him in the form of higher prices," Mr Fielding said yesterday.

"The current rate remains one of Fianna Fáil's and the Progressive Democrats' biggest failures," Labour party consumer affairs spokeswoman Kathleen Lynch said yesterday.