Rise in consumer prices eases deflationary trend

CONSUMER PRICES fell 3.1 per cent in the year to March, but rose slightly on a monthly basis, new figures from the Central Statistics Office(CSO) showed yesterday.

Prices rose 0.1 per cent last month compared to February, signalling that deflationary trends in the economy may be easing. This was the second consecutive monthly rise in prices.

Clothes prices rose 1.9 per cent in March as the effect of the January sales was shaken off, while higher petrol and diesel prices pushed the cost of transport up by 1.5 per cent compared to the previous month.

Hotel accommodation rates also contributed to the rise in prices during the month, increasing by 4.4 per cent compared to February.

Month on month, education costs were down 1.7 per cent as the introduction of the early childhood care and education scheme reduced costs.

“The extent of the downward price pressure stemming from other areas was larger than we had been expecting,” said Ulster Bank economist Lynsey Clemenger.

“In particular, the reduction in pre-school education costs in playschools and crèches, as a result of the introduction of the Early Childhood Care and Education scheme, had a significant bearing on the more muted than expected rise in prices last month,” she said.

The Consumer Price Index (CPI) excluding mortgage interest increased by 0.1 per cent in the month and was down by 2.2 per cent in the year.

The 3.1 per cent annual rate of deflation in March compares to a 3.2 per cent annual rate a month earlier. Deflation peaked at 6.6 per cent in October 2009, and since then the rate of decline has fallen.

Ireland is only one of five countries within the 27-member EU area to remain in deflationary territory. In Ireland, the EU Harmonised Index of Consumer Prices (HICP) is down 2.4 per cent on an annual basis. Across the euro zone as a whole, prices have increased 1.5 per cent over the past year.

Goodbody Stockbrokers said that this divergence in price trends between Ireland and the rest of the euro zone represented “important progress” in the improvement of Ireland’s competitive position.

Looking ahead to the rest of the year, Goodbody said the rate of deflation would continue to slow. It forecast a 1.5 per cent decline in prices over 2010 as a whole.

“By year end the annual CPI rate will be edging back into positive territory and we have very modest inflation of 1 per cent forecast for 2011, mainly resulting from higher interest costs,” said analyst Deirdre Ryan.

“Nevertheless, this will see Ireland narrowing the price gap further versus Europe in the quarters ahead.”

Retail Ireland said retailers had cut prices over the last year in order to attract more customers and save their businesses.