Strong euro could cut food prices

Food prices have contributed little to high inflation rates in the Republic and a strong euro could even force some food prices downward, a leading economist has claimed.

In a report commissioned for the retailer Musgraves, Mr Paul Sweeney said taxation policy and rises in the price of electricity, gas, education and telephones were serious factors behind the inflation of recent months.

Mr Sweeney said last month's rising prices in hotels, restaurants, licensed premises and for tobacco played a major part.

The fourth-highest rise in the 12 categories in the month was "miscellaneous goods and services", which included childcare and insurance, hairdressing and other non-traded services. The rise in this category was 0.5 per cent for the month and almost 6 per cent in the year, he said.

Food prices were \now rising at slower rates than most other items, he said. Food and non-alcoholic beverages did not rise in price at all in the month and the annual rise was half of the average overall rise.

"In the year to April 2003, the annual rise in the CPI [consumer price index] was 4.3 per cent, but the largest rises in the year were in services, with education rising by more than double the average, at 10.4 per cent, health at 8.4 per cent and restaurants and hotels at 6.4 per cent," he said.

Mr Sweeney said the rise of the euro had the potential to force down food prices. "The rise in the euro helps moderate inflation, particularly against sterling for food prices, because many processed foods are imported from Britain. The downside of the rise in the euro is that it impacts on Irish exporters and competitiveness.

"Prices for intermediate, capital and consumer goods in the euro area are easing. There are also indications that services price inflation in Ireland, the main driver of Ireland's high price rises since 2000, when Irish prices took off, also appears to be easing.

"The average rise on Irish consumer prices will be between 3.5 and 5 per cent in 2003, with the peak having been passed in February," he explained.