Annual inflation rises to 0.5%

Prices continued to rise compared to last year, the Central Statistics Office (CSO) said today, but fell back marginally month on month.

The annual inflation rate measured by the Consumer Price Index (CPI) rose to 0.5 per cent in the year to September, the largest increase since December 2008, and higher than the 0.2 per cent rise recorded a month earlier.

However, on a monthly basis, prices were down slightly, dropping 0.1 per cent compared to August.

The monthly price drop was driven by a decline in the cost of transport, which fell 1.6 per cent as airfares became cheaper. Miscellaneous goods and services fell by 0.4 per cent as charges for medical insurance declined.

However, it masked a number of price rises throughout the economy. The cost of clothing and footwear rose by 4.5 per cent during the month, mainly due to a recovery in prices following the summer sales.

"Further analysis reveals that there is little in the way of inflation pressures outside of mortgage interest costs and education," said Goodbody economist Dermot O'Leary.

Over the year, the cost of education was 9.5 per cent higher, while housing, water, electricity, gas and Other fuels saw a 8.5 per cent hike in prices. Communications was also more expensive, with prices rising 2.9 per cent.

Shoes and clothes fell by 7.4 per cent, while furnishings, household equipment maintenance saw prices decline by 3.7 per cent.

The cost of alcoholic beverages and tobacco was down 3.1 per cent over the year.

Fine Gael's enterprise, jobs and economic planning spokesman Richard Bruton said there is no sign of a return of confidence to the economy or in consumer spending. He noted that prices fell mainly in domestic services.

“The upward pressure on prices is due entirely to rises in a small number of areas. Mortgage interest, insurance, telecommunications, and third level education are all bucking the trend of falling prices.

“These sectors are all closely regulated by the Government. And it’s going to get worse: the Government will soon be inflicting a price increase in electricity on consumers and businesses."

However, he said that Ireland was regaining its competitive edge.

"Excluding mortgages, Irish prices are still falling, and have been for 18 months," he said.

"However, as ordinary people make sacrifices, and cut their wages and charges, the Government must see to it that its own activities also contribute."

The EU Harmonised Index of Consumer Prices (HICP), which excludes certain items such as mortgage interest and car tax from the calculations, fell by 0.2 per cent in the month, and 1 per cent compared with September 2009.

IBec said it was likely to be 2013 before the Irish price level returns to where it was in summer 2008.

"Ireland must continue to use this window of opportunity to restore competitiveness ," economist Fergal O'Brien said.

The business group said said the inflation figures indicated that price pressures would remain modest for some time yet.

"Although the consumer price index shows that Ireland has now exited the period of deflation, there is little or no price pressure in the economy and only very modest inflation will be experienced over the coming years," said Mr O'Brien.

"Following the end of the summer sales in clothing and footwear, we would have expected to see average prices rise marginally in September. However, the CPI was actually lower than in August as falling food, restaurant and other prices more than offset the seasonal bounce back in clothing and footwear prices."

However, the Irish Small and Medium Enterprises Association remained concerned about the effects of some costs on businesses, and renewed its call to the Government to tackle State-controlled costs.

“The Government policy of a smart economy, based on export driven growth, is nonsense, once they continue to allow state influenced cost increases to undermine competitiveness," said chief executive Mark Fielding. "Companies are attempting to reduce their costs on an ongoing basis to compete, but are hampered time and again by cost increases introduced by the State."

This call was echoed by the Small Firms Association.

“Irish small businesses have taken harsh steps to regain cost-competitiveness, but any gains are negated by the costs imposed by the government administered sector,” said director Avine McNally. “Government are ignoring a key priority by not urgently tackling the issue of costs. If action is not taken further jobs will be lost and businesses will close.”