Prices still in decline but deflation rate easing

CONSUMER PRICES fell by 3.9 per cent in the year to January, the lowest annualised rate in 10 months, new data released by the Central Statistics Office (CSO) showed yesterday.

The latest figures indicate a continued easing in the rate of deflation, which peaked at -6.6 per cent in October, before easing to -5.7 per cent in November and -5 per cent last month.

The most significant change in the year to January was seen in housing, water, electricity, gas and other fuels, which declined 15.2 per cent. Prices for clothes and shoes fell 10.8 per cent over the year, while food and non-alcoholic beverages saw costs fall 8.2 per cent. There was a 4.6 per cent decrease in prices of furnishings, household equipment and routine household maintenance.

However, the cost of education rose 11.3 per cent, while transport and health rose 3.5 per cent and 1.9 per cent respectively.

Goodbody analyst Deirdre Ryan said the slowing rate could be a reflection of the fact that mortgage interest costs are no longer having as much influence.

“In fact, while the overall rate of deflation is beginning to slow, core deflation, which excludes energy and mortgage interest costs, is on an accelerating trend. Core deflation stood at -2.8 per cent year on year in January, its fastest rate yet,” she said.

Winter sales saw prices for clothing and footwear and furniture, home furnishings and household maintenance fall during January compared to December.

Although the cost of a typical basket of consumer goods and services continued to fall month on month, the 0.6 per cent rate of decline moderated compared to the same month in 2009, when prices fell 1.7 per cent.

In January this year, prices for clothing and footwear fell 9.2 per cent compared to December, driven by traditional winter sales as retailers tried to entice shoppers to spend. Changes introduced in the budget also had an impact on the month’s figures. The effect of the changes in PRSI relief for dental and optical costs contributed to a 2.2 per cent increase in prices for health services.

A rise in petrol and diesel prices, meanwhile, was partially offset by a fall in airfares, leading to a rise of 0.6 per cent in transport costs.

The EU Harmonised Index of Consumer Prices (HICP) fell by 0.7 per cent in the month, compared to a decrease of 0.8 in January of last year. Prices on average were 2.4 per cent lower in January compared with the same month in 2009.

Bloxham economist Alan McQuaid predicted the moderation in the rate of deflation would continue throughout the year.

“The bottom line is that while overall prices are likely to be lower on average again in 2010 than in 2009, Ireland’s rate of deflation is set to ease considerably this year. Following an average fall in prices of 4.5 per cent in 2009, we are looking for a much more modest fall of less than 1 per cent in 2010,” he said.

Meanwhile, the Irish Small and Medium Enterprises Association called on the Government to address the country’s “out of kilter” competitiveness including State-influenced costs, such as commercial rates, water, waste charges and energy costs.