Annual inflation rises 0.7%

Prices rose 0.7 per cent in the year to October, but remained unchanged in the month, new data from the Central Statistics Office showed today.

A rise in health prices of 1.1 per cent, primarily due to a rise in prices for prescription drugs as the new levy was introduced, was offset by a 0.7 per cent decline in clothing and footwear prices, and a similar decline in education costs. Increased prices for house and motor car insurance contributed to a monthly rise of 0.5 per cent in miscellaneous goods.

Food prices rose by 0.1 per cent in the month, while non-alcoholic drinks rose by 1.7 per cent. Prices hikes were supported by an increase in the price of flour, coffee and pork.

Meanwhile, the introduction of the Public Service Obligation levy on all electricity customers from October 1st made electricity prices more expensive.

On an annual basis, the most notable changes were in housing, water, electricity, gas and other fuels, which rose 9.4 per cent. Communications cost 2.9 per cent more in the year to October, while transport costs were up an average of 2.1 per cent.

Clothing and footwear prices declined 7.2 per cent over the year, while furnishings, household equipment and routine household maintenance was down 2.9 per cent.

The EU Harmonised Index of Consumer Prices (HICP), which excludes items such as mortgage interest, increased by 0.1 per cent in the month, and decreased by 0.8 per cent in the year.

"Although the rate is easing, Ireland is now the only economy in the EU-27 that is experiencing deflation," analyst said Goodbody economist Dermot O'Leary.

" Deflation is often seen as the enemy but in the Irish case, given the need to engineer a real devaluation in a low inflation environment globally, it can be seen as a means to an end. We expect the HICP to decline by 1.6 per cent in Ireland in 2010. With prices rising across Europe, this is one illustration that this real devaluation is certainly in train."

Davy analyst Aidan Corcoran said core deflation may continue into next year.

"Price deflation will ease the burden of reductions in disposable income," he said. "In annual terms, core prices (excluding food, energy and mortgage interest) fell 1.6 per cent. However, this measure was almost constant on the month, showing continuing stabilisation."

The Small Firms Association and the Irish Small and Medium Enterprises Association called for the Government to act on State controlled costs, which the groups claim are hurting businesses.