Mixed reaction over rising inflation rates

PRICE inflation rose by 1% in February pushing the Consumer Price Index (CPI) up to 5.1% for the year.

The increase brought a mixed reaction from commentators and various employer bodies.

The increase is well up on the 4.8% figure for the 12 months to end January 2003 and forecasters are expecting more of the same in March.

ISME boss Mark Fielding called for the setting up of a “think tank,” to tackle inflation that was out of control, he said.

IBEC the main employer body was less sanguine and felt that the figure would definitely ease back as the year wore on.

Economists suggest that by the second half of 2003 inflation will be closer to 4.5% than 5%.

It may go to 5.5% in the short term however, Jim Power, chief economist, Friends First warned in his economic review published yesterday.

The worrying factor in the CPI glitch is that domestic costs are the main trigger in the higher consumer prices, said Austin Hughes, chief economist, IIB Bank.

In a declining economy it was expected prices might start to fall.

At end 2002 it had fallen to 5% and dipped to an annual rate of 4.8% in the year to end January.

Some forecasters revised their figures downwards at that point with Jim Power projecting a decline to 4.7% for the year.

He still holds to that figure following the latest release, but warns the Consumer Price Index could hit 5.5% in the months ahead before easing back.

Domestic costs are still going up while economic forecasts have been declining.

Inflation going up in a declining economy is always a worry and could lead to stagflation.

Price rises across a broad range of goods is disturbing, said Mr Hughes.

The February figures suggest more broadly based price pressures persisting, he said.

“This is in spite of powerful downward pressure on inflation coming from the combination of weak economic activity abroad, a sharp rise in the exchange rate of the euro and a notably weaker trend in Irish consumer spending.”

Clothing and footwear up by 0.5% in the month and a rise in food prices of 0.3% were key factors in the higher figure.

David Croughan, IBEC’s chief economist said that important areas of consumer spending inflation remained very low.

However Mark Fielding of ISME was much more pessimistic.

“Today’s increase, which is the biggest since the middle of last year, spells further gloom for many small businesses”, he said.

He called for an independent “think tank” to address out of control inflation

The rate would have been even higher if the Government had not allowed the ESB to delay charging the increase in VAT until next month, he said.

It is about time that a firm control was taken on the economy and that a think tank of economic experts, independent of the Government and Social Partners be given the task of introducing a strategy to bring Irish Inflation rates down to at least the EU level, which has recently reduced to 2.1%.

“This process should be undertaken without delay,” he said.