Inflation falls again due to shop sales and lower mortgage rates

Inflation eased for the fifth month in a row in July, as lower mortgage repayments and aggressive summer sales helped to mask stubborn price growth in other parts of the economy.

Figures released yesterday by the Central Statistics Office showed that inflation in the year to the end of July dropped to 3.1 per cent - down from 3.5 per cent in June, and the lowest level for almost four years.

A full two percentage points have been knocked off the annual inflation rate since February, when it spiked above 5 per cent.

A breakdown of the figures points to mixed trends, however, with inflation in the services sector, at 4.8 per cent, more than three times as high as price growth for goods.

Opposition parties said the July figures highlighted the Government's role in driving up inflation.

Fine Gael's finance spokesman, Mr Richard Bruton, said the impact of "Government stealth taxes is even more exposed" as other price pressures decline.

Labour's spokeswoman on consumer affairs, Ms Kathleen Lynch, said the headline inflation figure did not reflect "the continuing rip-off" faced by Irish people.

Green Party finance spokesman, Mr Dan Boyle, said that the Government could not claim credit for the July fall and pointed out that Irish price growth remains twice as high as the EU average by the official European measure.

Prices for housing fell 3 per cent in July as lower interest rates allowed for a 14.2 per cent fall in mortgage repayments, while clothing and footwear prices fell by 4.6 per cent on the back of summer discounts.

Furniture and household equipment prices were also lower but all other components in the inflation index pointed to a climb in the cost of living.

Education prices were almost 10 per cent higher than a year ago, while health charges went up by 8 per cent.

Restaurants and hotels raised their prices by 6.6 per cent, while alcohol and tobacco was 9.9 per cent more expensive, driven up in part by higher excise duties.

Friends First chief economist, Mr Jim Power, said the increase in prices charged by the hospitality sector was difficult to fathom in a difficult tourist season.

"It smacks of turkeys voting for Christmas," he said.

Mr Power predicted that the moderation in the overall inflation rate would continue over coming months, as weaker demand, lower fuel prices, and the ongoing strength of the euro put pressure on domestic prices.

He also expects lower wage growth in the private sector.

Employers' group, IBEC, said such a trend was essential "to nail inflation down".

The confederation's chief economist, Mr David Croughan, called for the disparity between services and goods inflation to be corrected so that competitiveness could be restored to the economy.

Most economists now agree that the annual inflation rate could drop beneath 2.5 per cent before the end of the year, thus allowing for the 2003 average to come in beneath 4 per cent and offering the Minister for Finance, Mr McCreevy, greater room to manoeuvre when framing the forthcoming budget.

IIB chief economist, Mr Austin Hughes, yesterday forecast an annual average of 3.6 per cent.

He cautioned against overreaction to the July numbers, noting that while they may "hint at some patchy easing in domestic price pressures, the dominant influence on inflation at a local level continues to be that of Government".

He identified encouraging strands within the figures, however, acknowledging that Irish inflation was much healthier than the German rate, which stood at 0.9 per cent in July.

Mr Hughes also pointed out that lower Irish inflation would translate into a rise in the real purchasing power of the Republic's consumers as the year progressed, thus underpinning consumer spending.

Falling inflation may lead to Budget tax rises: Business This Week