Food prices fall at rates last seen in 1930s

FOOD costs are set to plunge even further over the coming months as prices fall at rates last seen in the 1930s.

Prices are down 6.5% over the last year and fell by 0.4% in September, according to the Central Statistics Office (CSO). The last time prices fell by this rate was in the second quarter of 1933.

A supermarket price war meant food prices dropped 1.3% in the month and are down 6% from a year earlier. Fruit juice is down 12%, biscuits down 7.5%, margarine prices have fallen 10.5% and potatoes are down 9.4%.

Alan McQuaid, chief economist with Bloxham Stockbrokers said the combination of ample spare capacity and the fairly weak outlook for household spending would suggest retailers could be forced to cut their margins further in order to entice consumers back into the shops.

“And with sterling remaining extremely weak, the danger is that many more shoppers in the Republic will travel up to Northern Ireland to do their spending as the Christmas season approaches, unless retailers here offer sizeable discounts,” he said.

Retail Ireland director, Torlach Denihan, said the Government must take immediate action to encourage shoppers to start spending again. He said the Government must reduce the excise levels on alcohol, drop the VAT rate, cut State-controlled costs on the retail sector and reduce the regulatory burden on retailers.

Another major contributor to falling prices last month was transport costs which dropped by 0.9% in September and fell 4% over the year. Air fares have dropped over 21% in the last year and are expected to come down further.

Although mortgage costs have been one of the main contributors to the falling rate of inflation over the last year, dropping 48%, costs edged up 0.1% in September.

Brian Devine of NCB Stockbrokers said Ireland is now becoming more competitive in the Euro area.

“We would expect Ireland to continue to gain in competitiveness as wage-cuts filter through to prices. The longer Ireland takes to reform, the longer the economy will be stuck in a deflationary environment,” he said.

Fine Gael finance spokesman, Richard Bruton, said State prices are still too high.

“There is a sharp contrast between private sector prices and those regulated or controlled by the Government. The CSO shows prices for goods in the private sector have become competitive, and prices for market-delivered services, which are not sheltered from competition, are competitive. But the same is not true for services in the public sector,” he said.