Interest rates push inflation to 4-year high

The Government came in for widespread criticism today as new data showed consumer prices rose sharply in December and that inflation is at its highest for four years.

Figures released today by the Central Statistics Office (CSO) show that inflation accelerated sharply in December, reflecting the impact in the cost of mortgage repayments and a rise in tobacco prices in the Budget. A 34 per cent gas increase before Christmas has also had an impact, although this increase is likely to be revised downwards as international gas prices have fallen.

The rate of annual inflation rose to 4.9 per cent in December from 4.4 per cent in November. As measured by the harmonised index of consumer prices (HICP) - which excludes the impact of mortgage rate increases - inflation rose to 3 per cent, up from 2.2 per cent in October.

In a note on inflation during 2006 the CSO inflation had stood at 3 per cent in January 2006 but rose in six of the seven subsequent months.

Mortgage interest payments increased by 31.5 per cent in the year while energy prices rose by 8.2 per cent. If these two elements were excluded, inflation was just 2.1 per cent.

Drink and tobacco prices increased by 5.1 per cent last year. However, much of this increase was made up of a 3.8 per cent increase in December following budget measures, particularly an increase in cigarette prices. The price of education rose 4.9 per cent in the year, and the price of health was up 4.4 per cent.

The price of clothing and footwear declined by 2.1 per cent. The cost of furniture and household goods also declined last year, dropping by 1.4 per cent.

Fine Gael's finance spokesman Richard Bruton said the Government regulated sector had performed particularly poorly in terms of price control.

Labour Party consumer affairs spokesperson Kathleen Lynch said as ESB and transport costs filter thorough next month's inflation rate could approach 6 per cent.

Mark Fielding, ISME chief executive, said inflation is spiralling out of control. "The cost of living is now running at its highest in four years and the situation will get worse, with further increases in electricity, post, minimum wage, local charges, health costs and interest rates anticipated. It is conceivable that inflation could hit 6 per cent in the next number of months if remedial action is not taken."

SIPTU blamed the rise on indirect taxation measures of last month's Budget. Manus O'Rirodan, head of research with the union said the Budget produced an immediate impact of 0.4 per cent, off-setting any price cooling in other sectors.