Clothing and insurance prices creep up as inflation rate falls

By Niamh Hennessy

Friday, March 12, 2010

PRICES have started to creep back up, with clothes, footwear and insurance costs all increasing last month as the rate of inflation falls to -3.2%.

Having peaked at –6.6% in October last year the consumer price index (CPI), which measures the cost of living, has started to jump as prices for everyday items have started to nudge up.

On a monthly basis, prices were 0.4% higher in February than in January, the first positive change since last August.

The main factors contributing to the monthly change were increases in clothing and footwear, household equipment and furnishings due to a recovery in prices following the ending of the traditional January sales.

Health insurance premiums and mortgage interest rates also rose in the month.

There was also a surprising monthly decline in petrol prices, with a 0.3% recorded fall in contrast to the 2.2% increase on AA’s monthly survey.

Another notable feature of the report from the CSO was the 12.6% drop in charges for prescribed drugs, reflecting recently agreed price reductions between drug suppliers and the Government.

Ulster Bank chief economist Simon Barry said pricing power in clothing and footwear remains under pressure but the annual rate of change in mortgage interest payments is moving decisively higher.

There was also a significant surge in airline prices last month, increasing almost 27%.

However airline analyst, Joe Gill said this is a monthly figure and the year-on-year change of -1.9% is probably a better guide.

"Month on month can be all over the place, especially as January is a poor month," he said.

Bloxham chief economist, Alan McQuaid said that with prices starting to pick up again across the globe, there are some who are concerned about asset price bubbles, and the inflationary threat that they might pose.

"However, we think these worries are premature. When thinking about the outlook for inflation, we would continue to give far more weight to real world factors, notably the still high levels of unemployment and ample spare capacity.

"It is also worth noting too that the trends in broad money and credit aggregates suggest that inflation is unlikely to be a cause for concern anytime soon," he said.

Following an average drop in prices of 4.5% in 2009, Bloxham are looking at an annual average fall this year of just over 1%.

Small business group ISME said it has concerns that the consumer price index was "masking rising business costs, undermining competitiveness and threatening the viability of thousands of companies".

The association said a narrow window of opportunity existed for the Government to address the impact of state-influenced costs on the business sector, which would assist companies to position themselves to take advantage of any upturn in the world economies.

This appeared in the printed version of the Irish Examiner Friday, March 12, 2010