New CSO data show rising inflation trend

Economists were warning of the return of a rising inflation trend yesterday as it emerged that the annual rate of consumer price growth had edged up from 1.3 to 1.4 per cent in April.

The figure was released by the Central Statistics Office (CSO) as oil prices stuck close to all-time highs, driving fears that they could add close to half a percentage point to inflation over coming months.

In fact, in after hours electronic trading on the NYMEX last night, US crude oil futures hit an all-time high as concern over gasoline supplies prompted speculative buying.

Crude oil for June delivery hit $41.17 a barrel in trading on the New York Mercantile Exchange, eclipsing the previous record of $41.15 set on October 10th, 1990, two months after Iraq invaded Kuwait in the run-up to the first Gulf war.

The increase in April's inflation was the first recorded since last August.

Energy prices have already been ticking up in the Republic over the past few weeks, with the April inflation numbers showing that the price of home heating fuel increased by about 4 per cent between March and April.

Petrol was up by 2.7 per cent. Last night Maxol, the Republic largest independent oil supplier said it was raising prices by 3.2 cent per litre, a move which will lead to suppliers passing the increase on to customers shortly.

"It is easy to imagine Irish inflation being boosted by 0.3 or 0.4 percentage points if the current level of world oil prices persists for a significant period," said Mr Austin Hughes, chief economist with IIB Bank.

Oil held firm near record highs yesterday as concerns that OPEC may not be able to meet the surge in demand fed by global economic expansion fuelled speculation that $40-plus oil could be here to stay for some time.

Benchmark US light crude futures hit a peak of $41 a barrel from Wednesday's $40.77, which was the New York Mercantile Exchange's highest closing price in 21 years.

Average mortgage repayments were 1.1 per cent higher last month than in April 2003.

The good news in the April inflation numbers was that the economy appears to be suffering from little in the way of the entrenched domestic price pressures that were feared a few years ago.

Mr Hughes acknowledged that the "looming acceleration" in Irish inflation would be due to global rather than domestic pressures. He is expecting a modest uptick in inflation over the next 18 months and predicts an average rate of 2.7 per cent in 2005, up from 2 per cent this year.

Mr David Croughan, chief economist with IBEC, said pay settlements over coming months must reflect "the new low inflation reality" so that a reversal in recent trends can be avoided.

Bank of Ireland Global Markets (BOIGM) economists argued the decline in the euro against sterling over the past few months was the main driver of food deflation.

Dr Dan McLaughlin of Bank Of Ireland Global Markets said comfort should still be taken from the latest inflation numbers, pointing in particular to the Harmonised Consumer Price Index rate, which fell from 1.8 per cent to 1.7 per cent last month.

The index, which excludes factors such as housing costs and car insurance, now stands beneath the euro zone average for the first time in three years.

"It's worth noting that Irish inflation in April is 1.7 per cent against the euro average of 2 per cent and Irish growth in 2004 is likely to be 4.5 per cent against 1.5 per cent in the euro area. We have similar inflation but three times the growth," said Dr McLaughlin. - (Additional reporting, Reuters)