Prices increased last month for first time since August

PRICES ROSE in February for the first time since August as the winter sales ended, while less pronounced falls in mortgage interest costs meant Ireland’s annual rate of deflation eased last month.

The latest Consumer Price Index from the Central Statistics Office (CSO) shows that prices rose 0.4 per cent in February compared to January.

The annual rate of deflation in the year to February was 3.2 per cent, compared with 3.9 per cent in the year to January.

There was evidence in the CSO’s data that the economy remains under pressure, as clothing and footwear prices did not rise as much as expected.

Clothes prices typically rise by a double-digit percentage in February after the end of the post-Christmas sales, but the month-on-month rise in prices in this category was limited to 6.8 per cent.

“Pricing power in the clothing and footwear sector clearly remains under some pressure,” said Ulster Bank economist Lynsey Clemenger.

The cost of healthcare fell by 2.1 per cent compared to January as a result of the reduction in prices for prescribed drugs. Health costs are now running down 0.4 per cent year-on-year.

Goodbody Stockbrokers economist Deirdre Ryan said this was the most striking feature of the data, as it provided the first evidence of falling costs in public sector areas.

However, the Government was criticised for failing to control prices in areas such as education and transport. Fine Gael deputy leader and finance spokesman Richard Bruton said trends in these categories were “simply unaffordable”, and would damage Ireland’s chance of economic recovery.

Mark Fielding, the chief executive of small business group Isme, attacked the Government for increasing business costs.

“It is absolutely crazy that the Government will not reduce the cost environment to assist the business community to maintain and retain jobs.”

Economists expect that the CPI will stay in negative territory on an annual basis throughout most of 2010, although the drag on overall prices posed by mortgage interest rates is lessening fast.

The rate of decline in the cost of mortgage interest has been sharply pared back to 19 per cent as the impact of some of the cuts in rates by the European Central Bank (ECB) falls out of the annual comparisons, and mortgage lenders move to increase their standard variable interest rates.

Mortgage interest costs rose 3 per cent in February compared to January as lenders fought to recover margins on loans that are not tied to the ECB key lending rate. The annual rate of change in Irish mortgage interest rates is expected to bounce into positive territory by the summer, despite the fact that the ECB is likely to keep its rates on hold until early 2011.

The EU Harmonised Index of Consumer Prices (HICP), which excludes mortgage interest and is the standard measure of inflation across Europe, rose 0.9 per cent on average in the euro zone in the year to February. In Ireland, HICP prices fell 2.4 per cent.