State largely to blame for high inflation levels

THE annual headline rate of inflation, as measured by the CPI, has averaged close to 5% year to date.

Increased housing costs have been the main factor putting upward pressure on inflation, principally due to higher mortgage costs, reflecting the fact that the ECB hiked rates from 2% to 4% between the end of 2005 and mid-2007.

Excluding mortgage interest, the CPI rate has averaged a little more than 2.5% in the first nine months of this year. Meantime, the EU harmonised index of consumer prices (HICP) rate for Ireland has averaged 2.7% year-to-date. Both these measures are much lower than the CPI inflation rate and indicate the extent to which rising mortgage costs are impacting on the CPI.