Inflation rate lowest in five years

ANNUAL inflation has fallen to its lowest level in five years, according to official figures published yesterday, but experts warned the good news may not last long.

The Central Statistics Office (CSO) said inflation for 2004 was 2.2%, down from 3.5% the previous year and at its lowest level since the 1.6% recorded in 1999.

The drop was greater in the earlier part of the year, which was partly offset by a sharp rise between April and July triggered by surging oil prices. Petrol prices were an average of 9.8% higher during the year, while diesel was 10.4% more expensive.

The rate also picked up in the middle of the year thanks to the non-recurrence of 2003’s interest rate cuts, a factor that had caused mortgage interest costs to fall and drag down the overall rate that year. The CSO said fluctuations in the inflation rate in the second half of the year were small.

Significant falls in motor insurance costs meant the rate of inflation for the miscellaneous goods and services category was negative for the first time in 25 years. The CSO also noted falling prices in cosmetics, toiletries, home insurance, personal hygiene products and small electric items such as shavers and hairdryers.

Food and non-alcoholic beverages also became cheaper during 2004, as prices registered their first annual fall since 1993. This category has seen prices go down just twice in the last 25 years. Clothing and footwear continued to fall, with average prices 3.5% lower year-on-year. Clothing and footwear was, on average, nearly 14% cheaper than five years ago. Education and healthcare costs, on the other hand, are more than 35% higher than in 2000.

Six of the other nine categories measured by the CSO saw prices go up, but at a slower rate than in 2003. The three exceptions were transport, communications and the catch-all housing, water, electricity and gas category, which recorded higher inflation rates than 2003.

Inflation in December was 2.6%, down from 2.9%, while the adjusted inflation rate, measured on the same basis as other EU countries, was 2.4%, down from 2.8% in November. Bloxham economist Alan McQuaid said the fall in the overall inflation rate was helped by the Government’s decision not to raise taxes on alcohol, cigarettes or petrol in the December Budget. He predicted the rate would rise soon and break the 3% barrier.

“Although the Government is patting itself on the back for not raising indirect taxes in the budget, it still has to take responsibility for the recent rises in electricity charges, bus and rail fares, refuse collection charges, hospital charges and toll-bridge charges.”