Rising fuel and home loan costs take toll

HOUSEHOLD BUDGETS remain under pressure from rising mortgage costs and higher energy prices, new figures from the Central Statistics Office show.

The CSO’s latest Consumer Price Index (CPI) showed the annual rate of inflation remained unchanged at 2.7 per cent in June.

On a monthly basis, however, prices fell by 0.1 per cent in June on back of lower prices for clothes and footwear linked to summer sales.

This was partially offset by higher prices in the hotel and restaurant sector which rose by 0.6 per cent.

The figures did not take into account the VAT rate reduction on tourism-related activities introduced by the Government on July 1st.

With little or no domestic pressure on prices, higher mortgage and energy costs continue to be the main drivers of inflation.

Mortgage interest costs – which now account for more than 50 per cent of the total increase in inflation – were up 1.8 per cent last month and have risen almost 22 per cent on an annual basis.

The figures did take into account of last week’s rate hike by the European Central Bank which will drive costs up further.

The CPI excluding mortgage interest decreased by 0.2 per cent in June and rose by 1.6 per cent in the year.

Despite falling by 1 per cent last month, energy costs still account for 30 per cent of the overall increase in prices, and are up 10.5 per cent in the year to June.

The European Harmonised Index of Consumer Prices measure (HICP), which excludes mortgage interest charges, fell 0.2 per cent in June. The annual inflation rate, as measured by the index, was 1.1 per cent in June.

“With consumer spending power set to continue to be squeezed by the ongoing austerity measures, restricted access to credit and inflation in energy and mortgage costs, domestic price increases are likely to remain negligible,” Goodbody economist Juliet Tennent said.

“Weak labour market conditions will also temper wage inflation and further limit price increases in our view,” she added.

Employers’ group Ibec predicted inflation would moderate further in the second half of the year as there was little upward pressure on prices in the domestic economy.

The group’s chief economist Fergal O’Brien said: “Inflation is set to fall back further during the second half of the year and will probably finish the year at close to 2 per cent, before falling further in 2012.

“Almost all of the inflation currently in the economy is due to rising mortgage interest rates and higher energy prices,” he said.

Assistant director of Ibec’s associate organisation, The Small Firms Association, Avine McNally said the continuing “high rate” of inflation was damaging the ability of firms to do business.

The most worrying aspect is that, for the main part, inflation is being driven by increases in daily input costs for businesses, she said.